I recently had a look around the Santa Fe Institute website in order to see whether anyone there was seriously attempting to apply complex systems research to understanding capitalism, and the current economic crisis. ( links below.)
My reason for taking a look is that SFI is a major centre of cross disciplinary research into complexity, and I was wondering whether anyone there was taking a serious look at capitalism from that perspective. I think that sort of work would have to be valuable, regardless of the fact that it would be commissioned by capitalists wanting to find a way to keep capitalism on its feet, rather than with the intent of demonstrating that the system is mortal.
The reason that “The Austrians” do have a certain appeal, relative to the fundamentally mechanistic approach of the Keynsians, and most of the neo-classical economists is that they have some idea that disequilibrium is an intrinsic part of capitalism. What they just can’t comprehend is the idea that this very disequilibrium (and associated dynamism) can’t help but drive the system to a whole new level in which the continued ownership of the means of production will become something which very clearly stands in the way of what excites them about capitalism.
However, although we can say this, there is still a large amount of hand waving involved (especially when I say it!). In order to engage in serious debate with people who are in favour of progress but see capitalism as the best driver of this, we need to be able to engage in detailed argument at a much higher level.
Contrary to the straw man view of socialism which the Austrians have no great difficult in knocking down, I think we need to argue that socialism would not be a system without disequilibrium . Although I just don’t know enough to be able to produce a coherent account of how a socialist economy would actually work, philosophically I’m of the view that any system in permanent equilibrium would have to be a stagnating one. That of course is exactly the basis of the economic attack on socialism from the Austrians …. that it wouldn’t work because it would be a clunky top-down system driven by a rigid central plan, rather than a living, dynamic one.
I think that the Austrians are onto something when they argue (against the Keynsians), that attempts to avoid capitalist crisis by interfering with the cyclical ups and downs of capitalism have already caused slower economic growth (and the most shallow people in the area, see this as a sort of “creeping socialism”.)
However it seems to me that what the Austrians actually worship should be characterised as “utopian capitalism” (rather than “scientific capitalism!) because they fail to take into account the reality that capitalism is not just an economic system unaffected by politics/ideology/class struggle. Their models are abstract ones, in which the system works as if it were isolated from history. To that degree, they have actually fallen into a sort of mechanistic thinking themselves. Capitalism just could not have survived as long as it has, if the ruling class had been really prepared to “let it rip” without any attempts at adjustment. The capitalist class has had to attempt to minimise and postpone crises, and its also had to give the working class as much as possible, just in order to maintain state power. I think the price has probably been slower economic development and lower profits, but it’s a lower price than losing power. And even despite this, economic development has been enormous . As an engine of development, even when it has not been running at top speed, capitalism (since ww2, especially) has been able to raise the living standards of the working class to a level which (I think) would have surprised Marx and Engels. The bourgeoisie is capable of learning, and it has done so. I think that we’ve learned more slowly….
The argument for socialism must be along the lines that it will be far more dynamic than capitalism in unleashing the productive forces and raising living standards. And I think we will need to have a real grasp of why this requires us to recognise that it too will have to be a complex, evolving, and not fully predictable system, rather than a mechanical, harmonious one. It won’t have capitalist crises, in which periodic overproduction upsets demand-supply equilibrium, throws masses of people out of work and requires a period of “uncreative destruction” before things can get going again, but I’m sure that it will have sufficient complexity to exhibit the same surprising, difficult to understand characteristics, which emerge in all complex systems (biological life being the paradigmatic example of a complex system).
I didn’t find anything startling at the SFI, but so far I’ve only looked quickly – and also my grasp of the issues involved in complexity is still minimal . I’ll just post some of the links I found below, without former comment. Possibly some of them may form a starting point for a bit of a discussion…
( I came across them all via a google search which included the words “Santa Fe” and “economics” so they aren’t all directly from the Santa Fe site, but they all have some connection.)
Possibly the most intriguing one was on the Santa Fe science Blog but it only leads to a short report from PortFolio.com: The Crash-Test Solution .
excerpt:
To anticipate the next crisis and find our way out of this one, we may have to cast off economic and financial dogma and adopt ideas inspired by physics and other natural sciences, disciplines in which the notion of unstable and unpredictable systems is nothing new. For instance, the technology now exists to go beyond economics to build a massive, complete computer model of the modern economy, from the corner store to the city bank and the Federal Reserve.
With such a model, physicists would be able to track changes in the economy dynamically. There have even been calls for an ambitious effort akin to the Manhattan Project, which built the atomic bomb, to bring the most sophisticated mathematics and computer modeling to bear on managing the world’s economies more aggressively than has ever been attempted.
I also found a whole page containing links to possibly interesting articles here. (Not all have a directly economic focus)
A google book: Complexity and the History of Economic Thought.
An attack on Santa Fe from one of “the Austrians” at Lew Rockwell.com for taking a “Marxist” approach (which clearly they don’t, from what I’ve read): Central Planning is Spontaneous Economic Order?
excerpt:
It was this line, combined with the concept of self-organization, which gave me hope that brilliant scientists would produce research supporting the wonders of capitalism while demonstrating the reasons as to why socialism/central planning has utterly failed and has only lead to wide-scale poverty. After all, socialism/central planning is a concept antithetical to spontaneous self-organization. Unfortunately, the Santa Fe Institute’s economics research program – particularly in the area of poverty – has shown me that the socialistic paradigm, that is so common in academia, is literally blinding their research efforts.
Instead of promoting capitalism, which is inherently an unplanned, self-organized, and a successful economic system, SFI’s research regarding poverty has a Marxist class-struggle flavor to it while promoting wealth redistribution – i.e. taxation and redistribution, by a central governmental authority, with the goal of alleviating poverty.
Another article is one that was published in Scientific American (1990): “Positive Feedbacks in the Economy”
Some other articles by the author of the above article may also be of interest.
Some of the Utopian Capitalists at places like Catallaxy might be interested in debating us on these sorts of issues……..if we could get our act together……..
This is several large topics!
Too much to think about, but meanwhile a few quick notes:
1. Concept that the dynamics of capitalism is ITSELF what drives to a new level of social organization is fundamental to Marxism and desperately needs to be rescued from mere handwaving.
2. Cost of capitalists meeting workers demands to avoid losing power would certainly include less profits, but I don’t agree that it could result in slower economic development. eg Workers insistence on better wages and conditions raises the rate of technological development (to cut labor costs), while cheap labour encourages continuing technical stagnation.
3. Also we shouldn’t credit capitalism with raising workers living standards. Modern industry deserves credit by all means. But the core of our position is surely that capitalism now retards rather than accelerates modern industry.
There’s a lot not to recommend in the 1929 Comintern program, but this passage emphasizes how central the concept of unleashing science and technology from the fetters of capital has always been from a communist perspective:
4. I like the concept of “Capitalist Utopianism” ie whereas Marx scientifically analysed the reality of capitalism, the bourgeois apologists present a fairy tale and blame the stark realities of actual bureaucratic state capitalism on “socialist government” as though the working class held power and the capitalist class was in opposition dreaming of a better world!
5. This absurdity has caught on since the victory of revisionism in the Soviet Union. The “years of stagnation” under Brezhnev were loudly proclaimed as “socialist” and the stagnant pseudoleft who regret its collapse help spread the concept that this sort of stagnant “order” is what the left stands for. Previously everyone was quite clear that the right were the “party of order” and the revolutionary left was into uninterrupted revolution, the complete opposite of “harmony”. The conservatives could reasonably denounce us for being excessively into disequilibrium that could result in all sorts of disasters but it simply wouldn’t occur to anyone to associate the left with stagnation and harmony!
6. Communists stand for revolutionary transition:
How hard can it be to grasp that this will have to be a complex, evolving, and not fully predictable transition, rather than a mechanical, harmonious one?
NB I have emphasized replacement of the word “system” with “transition”. The concept of a “socialist system” rather than an epoch of transition from capitalism to communism has led to a lot of confusion.
Surely the problem is to how to convince people that is both possible and necessary rather than how to convince them it will be complex, evolving and not fully predictable, let alone mechanical and harmonious!
8. I’m very interested in complexity and the Santa Fe stuff, but will leave it there for now. (I don’t think their interest in shifting from dynamics to statistical mechanics comes anywhere near what’s needed, but they certainly seem aware of the bankruptcy of mainstream economic theory).
There’s a lovely report of remarks by Prof Steve Keen (of WA) in the Business Age 2009-09-09
His focus is on the debt crisis, but he seems to have a solid critique of neoclassical economics generally and I’ll be very interested in reading his lectures (and papers, book, links etc). Note references to evolution, complexity, econophysics etc.
From only a very quick look so far he’s not completely ignorant of Marxism (though wrong in “correcting” marx about machinery adding value) and owes a fair bit to his understanding of Marx on money and credit. I think he’s VERY worth studying closely. In fact I’d like a hardcopy of his book (please).
Also need to checkout the others on the list of “top 12 economists” who predicted financial collapse mentioned in Age article. Can anyone find it?
If you google Steve Keen is wrong you get some interesting counter argument.
steve keen’s blog: http://www.debtdeflation.com/blogs/ mentions two other contrarians and links to the others
He’s from Uni Western Sydney, not WA
> need to checkout the others on the list of “top 12 economists” who predicted financial collapse
Section 3 of “No one saw it coming” (pdf) (link from this blog by steve keen) contains this list of those who anticipated the recession
(You would have thought that those who are now predicting a recovery would have less credibility than those who predicted the recession but our mass media does not see it that way)
Dean Baker, US co-director, Center for Economic and Policy Research
“ …plunging housing investment will likely push the economy into recession.” (2006)
Wynne Godley, US Distinguished Scholar, Levy Economics Institute of Bard College
“The small slowdown in the rate at which US household debt levels are rising resulting form the house price decline, will immediately lead to a …sustained growth recession … before 2010”. (2006). “Unemployment [will] start to rise significantly and does not come down again.” (2007)
Fred Harrison, UK Economic commentator
“The next property market tipping point is due at end of 2007 or early 2008 …The only way prices can be brought back to affordable levels is a slump or recession” (2005).
Michael Hudson, US professor, University of Missouri
“Debt deflation will shrink the “real” economy, drive down real wages, and push our debt-ridden economy into Japan-style stagnation or worse.” (2006)
Eric Janszen, US investor and iTulip commentator
“The US will enter a recession within years” (2006). “US stock markets are likely to begin in 2008 to experience a “Debt Deflation Bear Market” (2007)
Stephen Keen, Australia associate professor, University of Western Sydney
“Long before we manage to reverse the current rise in debt, the economy will be in a recession. On current data, we may already be in one.” (2006)
Jakob Brøchner Madsen & Jens Kjaer Sørensen, Denmark
professor & graduate student, Copenhagen University
“We are seeing large bubbles and if they bust, there is no backup. The outlook is very bad” (2005)” The bursting of this housing bubble will have a severe impact on the world economy and may even result in a recession” (2006).
Kurt Richebächer, US private consultant and investment newsletter writer
“The new housing bubble – together with the bond and stock bubbles – will invariably implode in the foreseeable future, plunging the U.S. economy into a protracted, deep recession” (2001). “A recession and bear market in asset prices are inevitable for the U.S. economy… All remaining questions pertain solely to speed, depth and duration of the economy’s downturn.” (2006)
Nouriel Roubini, US professor, New York University
“Real home prices are likely to fall at least 30% over the next 3 years“(2005). “By itself this house price slump is enough to trigger a US recession.” (2006)
Peter Schiff , US stock broker, investment adviser and commentator
“[t]he United States economy is like the Titanic …I see a real financial crisis coming for the United States.” (2006). “There will be an economic collapse” (2007).
Robert Shiller , US professor, Yale University
“There is significant risk of a very bad period, with rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected.” (2006)
Thanks Bill,
I just finished the paper that lists top 12. Agree with it that accounting models including both monetary and physical stocks as well as flows are essential instead of the neoclassical equilibrium models.
Incidentally the latest UN standards for national accounting are quite sophisticated in that respect, but it will take years for national accounts to reflect them. Even then they are still stuck with the fact that there is really no practicable way to value long term assets since the contradictory unity between use value and exchange value as at its most contradictory when comparing the replacement costs of long term fixed assets with expected returns – that depend on unknown future market conditions.
None of them seem to mention modeling classes. There’s just a “household” sector which has both wage income and financial assets. Not much hope of accurately describing capitalism!
I gather that the others are similar to Keen in focussing on unsustainable debt levels inevitably resulting in Ponzi bubbles and subsequent deflation. That makes far more sense than the purely apologetic mainstream, but still seems to treat it as “folly” that might be fixed by “regulation” rather than exploring the overproduction crisis that could only be postponed by more and more debt.
Was hoping there would be more on that “real” side in Keen but haven’t found it.
Theres some interesting Utubes Peter Schiff and Steven Keen on Dateline I love it when Peter says somebody somewhere in the world is producing real wealth.
I’m finding Steve Keen’s lectures interesting and useful. The extracts from his book suggest it would be worth getting…
The Keen extracts and lectures look good to me – both comprehensive and starting from a beginner’s level but continuing to advanced
amazon book availability:
http://www.amazon.com/exec/obidos/tg/detail/-/1856499928/qid=1035009745/sr=8-1/ref=sr_8_1/102-2972783-8729762?v=glance&n=507846
looks like some of the used copies are available internationally
hardback is v expensive but paperback looks ok
it’s also available on proprietary kindle for $8 – tempted to buy a kindle, it would probably allow annotations
(also had a look at the original australian publisher – pluto press – but they no longer list it there)
for what it’s worth there is a critical review here:
http://web.usal.es/~anisi/MA/Debunking.pdf
Apparently, the amazon kindle is not available in australia due to protectionism for Australian based publishers
I just downloaded the free (but proprietary) mobipocket ebook reader http://www.mobipocket.com/en/DownloadSoft/ProductDetailsReader.asp and bought the ebook for $10 from http://www.mobipocket.com/en/eBooks/eBookDetails.asp?BookID=131405&Origine=4965
The mobipocket ebook reader has an annotation feature
I like this conclusion from Steve Keen’s lecture on Econophysics:
Here’s an article econophysics web site on Economics needs a scientific revolution
It casually mentions:
In fact that is literally the case, as Hilferding remarked around the start of the last century:
Unleashing some physicists on studying economics can only be positive in exposing the fraud. Unfortunately a lot of the orientation so far seems to be towards better models of financial markets with a view to either making fortunes from high speed arbitrage trading (eg Citigroup support of Santa Fe institute) or devising a regulatory control mechanism to prevent future crashes. A bit like (related field) of studying data sets on tremors etc to predict earthquakes – but without an underlying theory of plate tectonics and planetary evolution.
They do seem to be noticing that there are statistical laws concerning the increasing concentration of wealth. But I don’t get the impression the qualitative understanding has reached the level of Engels in Socialism: Utopian and Scientific:
Catalytic networks in chemistry, biological metabolism and morphogenesis and biological coevolution of species may be closer to modeling the organic development of a socioeconomic system than statistical mechanics, but the latter still has to be a foundation and a vast improvement from the purely mechanical stuff that inherently denies phase transitions. There must eventually be an abstract mathematical understanding of phase transitions that goes beyond description.
I still have a hardcopy of the original work “Laws of Chaos” that kicked off econophysics in 1983 from Farjoun and Machover (two marxist anti-zionist jews, the latter into mathematical logic and set theory). It was written in response to the 1980s revival of “marxist” political economy and was much more relevant and readable than most. I intend to study it more closely.
It’s available for download via link on this page.
Interestingly Steve Keen is listed as one of the keynote speakers at that 25th anniversary conference.
There are some problems with applying physics to the economy.
One is that physics and the economy are dissimilar. Physics examines inanimate objects that adhere to certain laws, where as economics studies the behaviour of individuals and masses of individuals who can all make choices and change their choices.
If applying physics to economics was a goer you would think that by now they could point to some successful predictions. Steve Keen is as famous for getting things wrong as getting things right.
I think economics is more analogous to war than to physics. In war as in economics great generals think up brilliant strategy that then needs to translate through, on the ground tactical variables, motivational variables, training variables, weather variables. In economics as in war enemies do the unexpected, intelligence reports miss big formations and generals order attack while troops organise retreats.
War like economics is subject to politics. Politicians can alter course with little warning. Tomorrow Obama could throw up a tariff barrier or the Chinese could float their currency. I cant see how a physics model could predict political decisions that may or may not be made.
Speaking of Steve Keen, I was wondering what anyone (who is familiar with it) thinks of his criticism of the labor theory of value?
I had a few exchanges with him re this in the final comments of this post
http://www.debtdeflation.com/blogs/2009/04/16/launch-of-marx-and-hayek-by-eric-aarons/?cp=5 of his.
Beats me Jad. In his reply to your question I just get lost. It seems so obvious that value must come from human labor,virtually every thing we use is only useful because some human has changed it with their labor.
I agree that physics has very limited application to economics. Nevertheless I see something posive about the current dogmas that rest on mechanics rather than more complex physics being challenged by people who cannot be dismissed as mathematically illiterate by the “sophisticated” purveyors of bourgeois apologetics dressed up in mathematical garb.
Politics is even tougher. The era of finance capital/imperialism does connects the two in ways that strike me as symptomatic of morbidity.
Jad I’ve read one or two of his papers re labour theory of value but haven’t read his thesis yet. Am not impressed at all by his rejection and absurd conception that machinery adds value. What’s interesting is that DESPITE being so wrong in a way that MUST prevent adequate comprehension of the real movements (eg overproduction) underlying economic crisis, he DOES seem to have a much better grasp of the centrality of the dialectic between use value and exchange value to Marx’s analysis of crisis. I certainly have no problem with him rejecting what passes for “Marxism” that doesn’t get that at all.
This is a link to someone who predicted the crisis. haven’t had time to do much other than read the article
http://www.ft.com/cms/s/0/e6dd31f0-a133-11de-a88d-00144feabdc0.html
Seems Arthur is correct that accountants are trying to fing the grand unifying theory but get stuck with future values and most models CCA CoCoA and CCPA are too vague hopt to get some time to pick this up
Yes the Bank of International Settlements did predict the crisis. They are a great mob at the BOIS. Several of its earlier members were convicted at the Nuremburg trials after WW2. Hitlers finance minister was one of the banks chief architecs. The bank was lucky to survive after WW2 as Rooservelt wanted it folded up because of allegations that it helped the Nazis loot occupied Europe. Apparently to bank was only saved because Rooservelt died before he could kill the bank.
Re Steve Keen – I too wasn’t convinced by his argument (as much as I understood it) that Marx himself showed that machinery could add value and that Marx then supposedly shied away from this, not wanting to face the implications.
Debunking Economics is a good read though.
Thanks tomb. The (very long) comments to the FT article give lots of insight into the way some FT readers are reacting. I’ve also now read some of William White’s reports and this interesting article from Der Spiegel – The Man Nobody Wanted to Hear: Global Banking Economist Warned of Coming Crisis 2009-08-07.
There’s a fascinating final para:
The rest of that article is a useful summary of what seems to be the new orthodoxy about what went wrong and how to avoid it in future. I’m not sure I really do understand the orthodox view (I never did) as it seems to be so absurd.
As far as I can make out they now all agree that there was far too easy credit which resulted in asset bubbles that could have been prevented by tightening credit. At least that’s what they say while pumping unprecedented levels of credit into the system!
The reality of what they HAVE to do now strikes me as a better explanation for why they did what they did before. They clearly have little option now and there’s no reason to believe they had much option but to do (less of) the same earlier. ie Big surprise – there really isn’t anybody in charge of the global economy – we really do still live under capitalism!
There’s an amusing Letter to the Queen from the British Acadamy. Summary: “Who knew? – we did our best!”
Steve Keen’s latest blog points to an article (self righting markets and other shibboleths) in the Sydney Morning Herald in which the economics editor, Ross Gittens, challenges mainstream neo-classical equilibrium theory, the assumption that market forces will fix things – and Keen’s blog further links to the Dahlem Report (a more detailed critique of equilibrium theory, the market fallacy and the blinkered economic profession) and critises my favourite Keynesian, Paul Krugman, for his adherence to equilibrium theory, etc.
http://www.voxeu.org/index.php?q=node/3421
a second update of an earlier article with lots of lovely graphs comparing the current economic crisis with the Great Depression – the original and updates are all located at this URL
Once again, I obtained this link from the prolific Steve Keen, who as well as writing regular blogs also replies to the many comments he receives in the threads (http://www.debtdeflation.com/blogs/), his series on the difficulties of being a Bear is worth reading
Thanks for the links Bill, keep them flowing!
I’m struck by this conclusion in the Dahlern report:
This seems to highlight the mental block that persists among alternative economists who see through the bullshit of the mainstream. I’m finding the same in reading up on Minsky etc. They are noticing phenomena and describing them in much the same way that Marx did in describing crises, and have more sophisticated tools available for elaborating the nature of banking and finance (siding as Marx did with the banking as opposed to the currency schools). But they seem to view a switch of investment into financial instruments instead of actual production (and consequent asset bubbles and crises) as though does not reflect a lack of outlets for productive investment. The irrationality of periodic overproduction under capitalism highlights the irrationality of capitalism itself so they somehow cannot bear to think about it. They seem to be advocating a “prudence” and regulation that would simply mean permanent depression.
Bill the article you present is a pretty big climb down by the authors who were indicating that they thought our present difficulties were not rivaling the Great Depression but outstripping it.
In the authors own words “Golbal industrial production now show signs of recovering.”
“Global stock markets have mounted a sharp recovery….”
“The downward spiral in trade volumes has abated….”
I still think that the authors cherry pick ie no graph of Australia.
Plus there’s also the problem that the world of 1929 is not the world of 2009. What about China and India arnt these massive economies worthy of consideration when we discuss the health of Capitalism?
Just as an aside the US has also turned the corner on deflation. August’s figures are still deflationary but the trend has been reversed.
and also the charts comparing the stock markets make no sense to me.
Up dated chart two looks nothing like the charts you can look at if you go to Dow Jones Charts.
In the great depression the Dow fell from 381 to 198 within months. Over years it fell to about 40.
The Dow in our times reached 13930 and within months fell to 7062 but then recovered to 9241.
Where will the Dow go? Is this a bear market rally? I don’t think anyone can tell.
Just back to the charts I like the Dow because it tracks daily movement which is harder to fudge.
I’ve started some discussion with Steve Keen here (see comment #s 147, 172, 199, 213 and 231 so far).
BTW I just came across this from Ormerod:
;
have started reading laws of chaos. I might be missing something here but had always considered the uniformity of profit to not actually be real but more of a tendency towards it, similar to gravity and the pendulum they mention, but never reaching it. Technology, crisis, slow movement of capital risk (I’m not sure why they seem totally dismissive of risk)etc. mean constantly changing circumstances. As they state there is no equilibrium in anything so trying to find uniform prices doesn’t make sense to me. I do however agree that it is chaotic and they might have something but would like a few more variables. Haven’t finished reading so might be proved wrong.
tomb,
I agree. Haven’t finished “Laws of Chaos” either but their refutation of “Marx’s” “uniform” rate of profit should be read as aimed against the 1970-80s “marxian” literature debating Steedman et al, drawing conclusions allegedly about theory of value from eigenvalues of matrices.
Current inflation rate for the US just posted shows a rise to 1.29%.
Absolute deflation lasted for a mere 6 months.
This is still exciting stuff, are we now to see what disaster quantitative easing brings or are we to see that inflationary policies during a period of deflation are the correct choices.
The “policy debates” aren’t that exciting and attempts at short term forecasting especially futile in the current situation.
What IS at least hopefully exciting stuff is that some people may start to do serious study and analysis instead of speculating…
at least one Oz marxian as learnt the skills of writing theory that we everyday prolies have some chance following unlike the erstwhile boffins here
MARXISM – CAPITAL REFINED more>> http://home.alphalink.com.au/~loge27/marxism/marx_capital_refined.htm
Capital refined – Introduction
Developing policies in the interests of working people calls for the precision about our enemy that Marx offered throughout Capital. For Marx, the practice of science required penetrating beyond appearances to specify the structured dynamics in the accumulation of capital. His critique isolated the forms and stages through which capital expands.
The link provided by Jim Sharp leads to Humphrey McQueen’s site. I knew Humphrey back in the days when he took to the streets in protest against US governments that continued to proper up fascist regimes in others countries rather than against US governments that help tear them down. (Overseas readers may google Humphrey’s name for more info).
As a ‘boffin’ (ie, someone involved in research) with much to learn, I like to occasionally read Humphrey’s articles, as he was one of the few to have actually deeply studied Marx and Marxism and to have a solid understanding of it. The rest of us had a far more elementary grasp, and were good at mouthing platitudes in order to assert our credentials.
Humphrey has also dared to challenge green orthodoxy on climate change and been vilified for his efforts. I’ll post one of his pieces on this topic in the thread ‘Greens take another hit’.
A disappointment for me, with Humphrey’s site, is that it merely presents his articles while not allowing for questioning, challenge, debate, criticism. It’s a bit too much like presenting a final ‘correct line’. By contrast, there are very knowledgeable people at this site, StrangeTimes, who relish debate and thus present their views in a format conducive to challenge.
There’s much to question and challenge, especially Humphrey’s apparent support for the union bosses – the labour aristrocracy – who keep capitalism going. In many ways, he strikes me, these days, as a social democrat in the way his applies his understanding to the real world but there’s also good stuff there.
Humphrey, if you’re reading this, how about joining the discussion here, in the thread about the economic crisis?
Regards,
Barry
Oops. Error. It sounds above like I think Humphrey was the only person genuinely or deeply studying Marxism. Not what I meant. Rather, there weren’t many but, as this site and David McMullen’s ‘Social Ownership’ site reveal, there were and are others.
b.y.
like i said: mcqueen as learnt to write in ways understanderable by those of us who have or do work at the knife edge of production.you say & maybe right
[There’s much to question and challenge, especially Humphrey’s apparent support for the union bosses – the labour aristrocracy – who keep capitalism going.]
“for a life time i & my politcally conscious comrades have alus believed that for us who to live & pocreate we had to sell our labour power & time to capital who then legally stole the surplus value that we creaated which then allowed capital to keep on
MARXISM – CAPITAL REFINEDkeeping on expanding & overproducing thus its cyclic boom & bust crises [ which i alus thought owd marx called our dead labour], but then being nowt but a mere prolie, you now tell me its the union bosses -labour aristocracy who keep capitalism going.mcqueeens MARXISM – CAPITAL REFINED was the muse for my poem below, but! i’m bugged if your stuff inspires even as much as a doggerel
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Taking the next steps
21c social contradictions gather apace
& we’re on the edge of perceptual chaos
While as of now the boozh-wah-zie control
the news as well as agitprop infotainment
meantimes proletarians create the social wealth &
‘ave the numbers & history on their side. so dear reader
“What the bleeding hell is it still doing in the bosses hands?”
seeing the problem & complex solution be taking the next step?
In his blog, Steve Keen has just published a video of a recent talk he gave about the crisis where he promotes Hyman Minsky’s ideas that equilibrium is an impossible dream (Financial Instability Hypothesis) and condemns Bernanke’s stimulus solution. I think it’s a good introduction to Keen’s position and starting point for further discussion as a description of the characteristics of the crisis.
http://www.debtdeflation.com/blogs/2009/11/06/my-per-capita-talk-on-debt/
Bill, The video cuts out after 20 minutes. Is there access to the rest of his talk?
> The video cuts out after 20 minutes
it played through to the end for me
there is another version on slow tv:
http://www.themonthly.com.au/steve-keen-debt-and-economy-how-do-we-pay-all-2128
http://www.news.com.au/business/story/0,27753,26299725-462,00.html
Apart from this amusing article Steve Keen seems to be arguing in the video that Capitalism is sustainable as long as we keep speculative borrowing under control.
Steve, I agree from the video that Keen (and Minsky) locate the causes of the crisis in the financial system and lending practices. But I’m not sure whether their analysis undermines or complements the identification of ‘deeper’ causes in things like overaccumulation of capital, falling rate of profit or whatever.
It seems to me that for so much money there to be invested in subprime, derivatives and other such garbage it’s arguable that the dollars ended up there because there was too much of it sloshing round unable to be profitably invested elsewhere.
Jad,
Agreed! What’s remarkable is that this seems so bloody obvious yet so much “analysis” remains oblivious to it.
Well not that obvious. My take on what Steve Keen is saying is that the wall of money that finances the bubbles comes not out of productive Capital unable to find a profitable spot for re investment but out of “fantasy” money created by banks. For an example, Banks in Australia and an army of Financial advisers have been encouraging people to “unlock the wealth in their assets” and to enter wealth generation programmes. How it works is that say you bought a typical house in Adelaide in 1980 for $30K that house will now sell for $400K. Now your friendly financial adviser will say refinace, borrow $400K invest that in shares and you will be “generating wealth at twice the rate”
Thats one example of how Joe ordinary with the help of his bank one day has assets of $400K and hey presto next day he has assets of $800K.
Its schemes like this and the “magic” of derivatives that I think lead Steve Keen to argue that its a debt induced bubble rather than an overproduction induced bubble.
My take is yeah sure when a bubble gets going why would any Capitalist invest in plant at a 5% return when they could buy triple A rated derivatives that return 20% unless like Warren Buffett you just think that any investment offering way over the normal rate of return must be a con.
Jad, In defense of the position that it was excess Capital flowing into the US that fuelled the bubble I came accross the following on Wikipedia section titled Subprime mortgage crisis. “In the years leading up to the crisis significant amounts of money flowed into the US from fast growing economies in Asia and oil producing countries.”
It seems somewhat paradoxical that money would flow into the US to be lent at low rates (remember that after the dot com bubble Greenspan reduced rates to about zero) when Asia is “fast growing” and would be expected to offer beter returns.
Robert J Brenner in the article posted by Bill in the thread entitled Unemployment and Revolution argues that in the USA 2001 to 2007 was the weakest business cycle post WW2. So why would anyone send money into that economy? Brenner answers this by saying that East Asian economies were buying US dollars to keep the dollar strong in relation to their currencies. This dosent make much sense to me as the Chinese have had their currency (call it what you like) pegged to the US$ so no matter what the US$ sinks to the Chinese will maintain their competative advantage.
Not sure how China fits into his schema, but one economist who traces the underlying basis for the financial crisis to falling profit rates is Andrew Kliman (I think Arthur linked to an earlier paper of his in the U&R post).
Kliman has just released a paper claiming to show a persistent fall in the rate of profit in the US, summarised here: http://marxisthumanistinitiative.org/2009/10/18/the-persistent-fall-in-profitability-underlying-the-current-crisis/
I gather that the reason that Kliman has found a trend of falling profit rates whereas others haven’t lies in his adherence to the TSSI interpretation of Marx’s value theory.
Some helpful videos on TSSI as it relates to the ‘transformation problem’ are on the Kapitalism 101 site – which I think is a great website; http://kapitalism101.wordpress.com/what-transformation-problem/
Thanks for the links Jad. At some stage it might be useful to “engage” these debates, but my eyes tended to glaze over and I suspect most peoples would. Better for now to develop a positive presentation (stimulated by awareness of the various erroneous views from “left”) but focused on “mainstream” misconceptions (including mainstream pseudoleftism) rather than on somewhat incestuous trot and academic “debates”.
For what it’s worth, very briefly, I found “Kapitalism 101” thoroughly confused and patronizing, Chris Harmon a “hack theorist” simply pushing IS propaganda rather than attempting to analyse anything (though at least their propaganda is better than the left-liberal pseudolefts dominant theme of denouncing “Wall Street” and the “ripoff” since they stress capitalism as a system with systemic crises). Kliman’s calculations are simply wrong, eg trying to add back capital devalued through obsolescence (“moral depreciation”) to jiggle figures for profits and surplus value.
Quickly on some other recent points in this thread:
1. The point Jad made well was that there has to be some underlying reason for a shift from productive investment into “finance” of asset bubbles. Governments have just unleashed another “wall of money” to further delay debt inflation, despite the present GFC having developed from from previous such financing to get out of earlier stagnation. This isn’t just a matter of stupid policies, but very real problems in underlying capital accumulation and increasingly desperate efforts to stave off the consequences.
2. “Ordinary Joe” borrowing to speculate in the stock market has always been a sure sign of impending crisis.
3. There certainly is something very odd about the US importing capital from China. I don’t have a good handle on it, but it obviously doesn’t correspond to the “normal” imperialist flow from more developed economies with higher organic composition and lower profit rate to less developed economies with lower organic and higher profit rate. Even more bizarre is Chinese profit rates appearing to be dramatically high, but exporting capital. International finance has been a mess for decades and the mess is getting worse. These are symptoms of very severe disproportions.
4. One interesting sidelight is the demands from the US that China should raise internal living standards instead of keeping wages down to grab world market share. At one level this is the standard demand of every capitalist that the workers employed by other capitalists should consume more to provide a market. Accompanied by stunning hypocrisy about Chinese “manipulating” their exchange rate by keeping it fixed to the US dollar while the US depreciating its dollar is “market forces at work”. At another level there may well be a phenomenon of classic old style imperialism from the rising wannabe superpower as the fascist regime is able to suppress wages far more than its competitors can, generating superprofits that have less potential for returns at home than abroad. Needs careful study.
3. The growth phase of US business cycles getting weaker doesn’t make the US less attractive for investment than Japan which actually stagnated for a decade. Recent phenomena of cash flooding to the US when it was the worst hit by crisis and offered lowest interest rates simply reflects fact that the US markets a more liquid than others and suitable for parking cash that people don’t know what to do with for a while.
4. One of the long running misconceptions among “Marxists” has been the idea that long run tendency of rate of profit to fall is periodically “proved” by the sudden fall in profits at the outbreak of crisis (ignoring the rise in profits that indicated previous boom and heralded looming outbreak of crisis). My take on the actual interaction remains “half-baked”, but as I understand it the economy tends to grow at a “given” expected rate of profit between crises, in proportions based on assumption that capital can be reinvested in the same ratios to expand more or less uniformly. When the crisis breaks out it is discovered that more investment should have gone into deepening the organic composition and less into consumption department so the “proportional” expansion was actually disproportional given the basis on which capitalist consumption rests. Then a new wave of fixed capital investment starts the next cycle, at a higher organic composition and lower “given” profit rate than the previous one (this includes Keynesian “stimulation” but also happens anyway in the recovery phase). I haven’t seen anything from Kliman or others that suggests they have any clue on this. I wouldn’t have a clue how to disentangle meaningful figures from the extensive available statistics and its certainly clear that neither large staffs at financial institutions nor “academic marxists” have any track record of being good at it. (As mentioned earlier most Soviet economists expected a depression instead of a boom following WW2 so they weren’t much good at it either).
Arthur in point 1. don’t you mean debt deflation rather than debt inflation?
Arthur my point about Joe ordinary was not to repeat the old line about when the shoe shine boy give you stock tips get out of the market but to explain where Steve Keen sees the bubble money coming from ie fantasy money generated by banks. In the US it was even worse than my example as they widely used the stated income system to assess a persons credit worthiness.
1. Yes I meant debt deflation.
2. My point was that the creation of “fantasy money” is not the cause but a consequence of underlying overproduction. The extent and duration has been spectacular but its not in itself some radically new phenomenon. Marx described in volume 3 how it used to be done with “accommodation bills” (of exchange) drawn on non-existant exchanges to refinance earlier bills that were due but could not be repaid as sufficient returns were not received as unsold overproduction piled up. There would be no need for governments to be buying up vast amounts of commercial paper and home mortgages to rescue banks if the underlying assets that were “sold” to buyers that could not atually pay for them from the proceeds of investment were not in fact “overproduced” (and consequently “oversold” and “overtraded” through “speculation”).
This has now reached the point where shoeshiners think they own $400K or $800K houses, superannuation funds etc and governments consciously take measures intended to sustain that illusion fearing the consequences of allowing it collapse. (With good reason!)
I think Steve Keen correctly describes the phenomenon (with refreshing candour) but simply denounces it (blaming wrong policy) as a result of not being able to analyse underlying cause.
Jad I thought that the self mocking style of Kapital 101 is a good way of maintaining attention through a dry explanation of what I consider to be a non problem.
Either value is added by human labour or it is not. Seeing that every commodity is transformed by human labour it seems to be the vital ingrediant. I have for a long time thought that economists will never accept the labour theory of value because of pure ideological reasons. If you accept the labour theory of value then what follows is that working people are being short changed, there are very limited opportunities from economists to ply their trade whist maintaining that workers are chronically underpayed.
Jad, Marxists like Brenner and Harmon have been arguing that since the mid to late 1970’s Capitalism has been unable to find places to invest that will return proft rates at a less than diminishing return. This is despite the obvious evidence that China, India and Brasil have been giving large returns on investment. (I always thought that is what Capitalism did, invest until returns diminish then move on to the four corners of the world seeking profit and developing the world as they went) Anyway the Chinese government was so successful at this capitalism lurk that they could find a spare 800 Billion US$ to help finance the US governments debt. Now this 800 billion wasnt the money used to finance the housing bubble it still sits intact as treasury bonds. My question and by extention the question Steve Keen would ask or answer is where did the finance for the housing bubble come from?
My answer is that it was the US banks on the basis that they were the ones that ended up loaning 30 times more than they had in assets. It was the investment banks that went broke. There are several walls of money (I love that cliche) the Chinese wall went to the US treasury and the Bear Sterns wall went to Joe Ordinary with his 800K house and his 5K income.
Interesting posts above, which I’ll have to dwell on.
I may be wasting my time getting hung up on the transformation problem (or non-problem), but it seems important to me to consider because:
– the theoretical suppositions of value theory impact on how the data is treated and interpreted (eg I think Kliman would justify the jiggling he does in his calculations to get falling profit rates on the basis that TSSI treats value as evolving through time).
– while the problem is unaddressed, Marxist economics is dismissed (and perhaps rightly so) by economists such as Steve Keen as being logically inconsistent.
I’m not up to speed on the transformation problem Jad but it is covered in some detail in David Harvey’s book, Limits to Capital, pp. 61-8. I think it was you who recommended us to Harvey in the first place.
Just a correction. Earlier on this thread I stated that inflation for September in the US stood at 1.29%. The site I look at now rates the September inflation rate as -1.29% seeing as how they havent put up any explanation for changing the + to a – Ill have to wear the odium of yet another mistake. They actually colour code positive and negative so Im mistified how I got it wrong still the trend supports the point I was making.
Jad just back on where the speculative cash came from, if it was being redirected from non bank sources surely we would see non bank companies now reporting to share holders about where mountains of cash have gone. Trust me GM lost all their money without bank help.
Jad, Ive been giving it some thought. If you have a banking model that has a strong multiplier effect add in borrowers who are unrestrained by stuff like deposit requirements or ability to service loan requirements and you have the perfect banking storm. This model can be financed by rising real estate values as every house “sold” adds to the banks revenue that can be lent.
So theres a model that suggests that the financial crisis was self funding. To disprove this model people just have to point to non financial industry dollars that were sucked in. This should not be difficult as every real dollar has a real owner and all we need to see is non banking companies reporting losses from the finance sector. If this was happening I would expect it to make a big slash in the financial media something I have yet to see.
Steve,
I see what where you’re coming from and you could be right, but this may still complement other perspectives (though I’m certainly not knowledgeable anough to really judge).
eg Kliman argues here http://marxisthumanistinitiative.org/2009/04/17/on-the-roots-of-the-current-economic-crisis-and-some-proposed-solutions/ that rather than allowing another depression to restore profit rates, policy makers have encouraged expansion of debt to artificially boost profitability and growth (incidentally, another Marxist economist is quoted in the paper as saying “The current crisis is more of a Minsky crisis than a Marx crisis’).
So it could be the case that easy credit has had the effect of stimulating the ‘real’ economy, thereby also mopping up surplus capital (eg into construction) with the side effect of causing the financial crisis.
A bit like policymakers blocking one hole in the dyke to stop a leak only to cause a burst somewhere else.
Bill
I found Harvey’s treatment of the transformation problem (as much as I understood it – I found reading him hard-going at times!) satisfying on some levels. But I don’t think that arguing that Marx was striving for social insights rather than mathematical exactitude would satisfy a lot of economists.
Kliman’s book looks accessible and has had good reviews. Looks worth a read: http://www.amazon.com/Reclaiming-Marxs-Capital-Inconsistency-Dunayevskaya/dp/0739118528
jad:
If you check again on p.66 of Harvey then he does say “we are obligated to find a reasonable mathematically technique” and then goes onto claim that Morishima did find one. (in a context that the social insights are more important than the maths) In part Harvey’s book operates as a summary and launchpad for other works. Like you I’m not claiming any real expertise or originality (I’m not sure of the difference b/w a markov process and a simultaneous equation), just trying to locate and get my head around the more important issues at this stage.
Thanks Bill, I might have a closer look at Morishima’s take on the issue.
I had a brief look at Kliman’s book on google books – it looks very boring. I’m not really interested in all the math and the detail, just trying to work out whether bourgeois economists are right in saying Marx is irrelevant/inconsistent, or whether their position is, as Steve suggests, ideologically motivated.
1. There’s something awe inspiring about Steve Owens’ complacent assertion that that actual continuing deflation in US consumer prices still supports his original belief that it had “only” lasted 6 months.
2. A problem with the style of “Kapitalism 101” is that it panders to that sort of resolute determination not to learn anything new.
eg For all its confusion, the text there does explain that one cannot explain profit through overcharging in exchange (I haven’t watched the video, only the text).
This doesn’t have the slightest impact on Steve confidently saying that style held his attention while also saying:
That has always been the “socialist” view rejected by Marx who explained that labor power is actually sold at its value and called for “abolition of wage labour”.
Its quite hard to get across and pandering to people’s resolute determination not to think for themselves doesn’t help.
Arthur I agree that labour is sold at its market value (or a least tends to be) but labour is the commodity that adds value thereby being the input that is sold below its real value.(because it creates value)
You have stated that its obvious that surplus accumulated in production was channelled into housing speculation.
All I ask is that you provide evidence that what you assert as obvious is in fact real rather than just true because its what you believe.
Arthur your model is that corporations are making profits but those profits have become uninvestable due to a fall in the rate of profit (Ill accept this premise just for the sake of argument and only point to its clash with reality)
These corporations according to you then funnel these funds into the US credit market thereby driving the housing bubble.
My problem with your model is what evidence is there that what you say is so?
Take a large corporation like Toyota. If Toyota had bought US bank equity or made large deposits or loans to US banks then Toyota would now be reporting big asset write downs.
Just the fact the China and Japan hold lots of US treasury bonds does not inflate the US housing bubble as US treasury bonds pay for the US governments debt. ( Ill admit that US government debt policy affects the housing market but its just that effects not drives)
Just explain the links.
You despaired for the reason Steve Keen doesn’t see the obvious well have you considered that maybe the obvious is wrong.
Steve
I’m not sure, but if the govt has bailed out the banks doesn’t this mean there wouldn’t be a write down in assets of investors that ultimately funded the subprime housing loans (apart from those investment funds which weren’t bailed aout and which have in fact lost value)?
BTW I thnk it was me rather than Arthur hypothesiaing about falling profit rates.
Jad first thanks for the link to the IS journal I must resubscribe.
As to government bail out saving the transferred assets of non baking corporations lets just consider that if a corporation had taken an equity position in Bear Sterns, well Bears share price slumped from $133 to $10. I think we would have noticed if Toyota had been holding a substantial position in Bear. Or Lehman their stock price went to zero yet no non bank CEO is making apologies to shareholders for pissing all their money away.
As to it being you not Arthur, you asked people to consider that uninvestable profits might be driving the bubble it was Arthur who said that this was obvious.
Just for the record, there doesn’t seem much point responding to Steve’s incomprehension. The gibberish about what my views are supposed to be isn’t intended to promote discussion.
Re transformation problem, my take is that in fact neoclassicals and Marx are both describing the well known phenomenon that movement of capital from less profitable to more profitable sectors tends towards an “average rate of profit” as a markup on capital invested. Marx regarded this as a transformed further development of the classical theory of value whereas neoclassicals abandon the concept of value. Most “Marxist” literature on the subject displays complete incomprehension and is in fact economically and philosophically illiterate. Marx who was both economically and philosophically erudite was emphatic that “I am not a ‘Marxist'”.
arthur
we owd’ ens ‘ve known for eons
how owd marx was
o! so “erudite” & said:
if those strange folks
are marxians well then bugger me
“i’m emphatically not marxist”
while wanting to sound
all too trite there’s
nowt fa second
pizes today laddie
It still remains that after the dot.com bubble had burst official interest rates in the US were lowered from about 6% to below 2%. It defies credible belief that during this slump in interests rates international capital would flock to support a banking industry that was getting a return of less than 2%.
My point is that in these low return conditions its much more likely that banks would start to bend the “rules” ie start making bad loans rather than being put under pressure by pools of international capital.
steve
While the miser is merely a capitalist gone mad, the capitalist is a rational miser.our task is surely to find the dialectic
(Karl Marx (1818-1883), German political theorist, social philosopher. Capital, vol. 1, ch. 4 (1867).)
Jim what I was trying to point out is that there are people saying that the root cause of the US housing bubble was international Capital that forced liquidity onto the US banking system. My point is why did international investors (mainly the Chinese) take money out of Chinese banks which returned 5% during this period walk past Australian banks that never offer less than 6% and invest in US banks that were offering less than 2%.
BTW trend inflation lasted a mere 5 months.
Trend deflation not trend inflation
On November 12, 2009 at 1:16 am, in a sentence following one in which he characterized someone else’s work as “patronizing,” Arthur wrote, “Kliman’s calculations are simply wrong, eg trying to add back capital devalued through obsolescence (”moral depreciation”) to jiggle figures for profits and surplus value.”
Arthur does not explain why this is “simply wrong.”
In any case, the main conclusions of my paper are *not* based on the adjustments for moral depreciation, but on figures taken straight from the government’s website, without adjustment. I first present the profitability figures based on the government’s concepts, analyze them, and draw conclusions. It isn’t until p. 87, after all of that, that I turn to the moral depreciation problem.
Hi Andrew,
My comment was a brief statement that it might be useful to engage with various material at some point, but not a priority for me at the moment, with some brief “For what it’s worth” remarks on my quick impressions.
I certainly agree that I made no attempt to explain why I think you are wrong and that the example I gave on moral depreciation is not central to your work.
I do happen to be particularly interested in “moral depreciation”. While unwilling to commit time to an overall engagement with your work or take the initiative in discussing that aspect of it, I would be happy to respond by further informal “blog comment” discussion here to any summary you present here of your treatment of moral depreciation in estimating surplus value and reasoning on that point.
Hi Arthur,
If and when there’s a critique that’s supported by something more than bare assertions, I’ll reply.
http://www.debunkingeconomics.com/DebtDeflation/keynesian%20or%20marxian.pdf
I’m drawing attention to this paper in case it has been missed, since Keen is so prolific. Keen argues continuity b/w Minsky and Marx.
Thanks for the ref. I had missed that paper and found it very interesting on quick read. Must study closely.
FWIW on very quick read, I certainly agree that there’s a lot in common between Minsky and Vol 3 of Marx on finance. Also strongly agree with Rosdolsky on centrality of contradiction between use-value and exchange value in Marx’s theory of value and centrality of that in understanding crises. Also agree that this is especially relevant to “uncertainty” and the rise and fall of fixed assets valuations. But that strikes me as a fundamental difference between Marx and Minsky – Marx describes underlying disproportions in the “real” economy reflected in finance whereas Minsky is other way round. Likewise Keynes describes radical uncertainty but seems to think resulting fragility can be overcome by counter-cyclical government policies whereas Marx explains that it is inherent in commodity production and fragility can be overcome only by replacing exchange of privately owned commodities with allocation by associated producers.
BTW Rosdolsky also highlights Marx’s numerous references to “moral depreciation” and emphasizes that the “abstract socially necessary labor time necessary to produce another unit of a commodity (type)” has nothing much in common with the “embedded labor” concepts of “vulgar Marxists” (including Meek), let alone Andrew Kliman’s variant. It explicitly emphasizes that it is the (current) reproduction cost, not historical production cost that is decisive (hence importance of “moral depreciation”).
a friend pointed out this comment about the Chinese implications of the rally of the US$, which I’m not in a position to evaluate critically, but will post here since there was some discussion about the China factor here earlier:
Steve Keen’s concludes his 2009 retrospective with a prediction for 2010:
Unique visitors to Keen’s blog have increased from 15,000 to 50,000 during 2009. He will be blogging less in 2010 due to his other commmitment to write a book about the crisis.