There is no such thing as capitalism

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In literary studies, one of the most important requirements is the need to define one's terms accurately and then to stick to those definitions. Failure to do it is a certain route to failure; it is in many ways the central rigour of the discipline.

Chris Johnston cartoonSo it has always come as a shock to this writer that economics is almost completely devoid of such precision. Much of the terminology of what is amusingly referred to as the 'discipline' of economics is either nonsense, or thinly disguised tautologies.

The most prominent and pernicious variant of the nonsense is 'financial deregulation'. This is a flat out oxymoron. Finance consists of rules, mainly about value and obligation. So financial deregulation can be translated as: 'taking the rules out of rules'. In truth, it was just a scam by the finance sector to remove government oversight, allowing them to make up their own rules. It led to an absurd debauch with the monetary system, leading to the Great Recession of 2007-8. The cost of capital, interest rates, have been all but zero ever since.

A related form of nonsense is the distinction between 'free markets' and 'government'. As Robert Reich explains in his book Saving Capitalism, this dialectic does not survive even the most superficial scrutiny. As he says, 'the debate it has spawned is utterly false'.

The reason is that a 'free market' cannot exist without government. Markets require rules — they do not exist as some sort of natural entity separate from society; they are an artefact — and those rules require governance. In other words, the one depends on the other. As Reich says, 'the rules are the economy', they are not separate from it.

This should have been obvious enough, but the supposed opposition seems to have seduced everyone. As Reich observes: 'It is taught in almost every course on introductory economics. It has found its way into everyday public discourse. One hears it expressed by politicians on both sides of the aisle.'

Even left wing critics of capitalism, most of whom do not really do their homework properly, seem not to have noticed what intellectual rubbish this is. The response is often to come up with ways of apologising for government, such as ideas like 'social capital' or 'triple bottom line' accounting, or seeing government involvement in society as always a cost, but perhaps a necessary cost.

 

"It is all a ruse for powerful interests to reorganise the market to suit their own interests, an agenda so successful that the inequities are now starting to threaten the fabric of American society."

 

What should have happened is that this quasi-mystical drivel about 'market forces' — which has been even more absurdly aligned in some quarters with Darwin's ideas of evolution to create the impression that it is a force of nature — should have been dismantled, along with the entire edifice of what is referred to as neo-classical economics — an attempt to create the illusion that economics is a science by attaching numbers to the false claims being made. In fact, in epistemological terms, economics is nowhere near a science because it never achieves predictive validity. It has been shown repeatedly that economic forecasts using neo-classical models are less accurate than tossing a coin. The joke about econometrics — that it is a 'mathematically precise line between an unwarranted assumption and a false conclusion' — can pretty much be applied to the entire discipline.

It would mean shutting down almost every economics department in every university in the world. But at least then it might become possible to look more sensibly at markets and society and maybe even develop some policies that make sense. In particular, it would make it possible to address the growing inequality in developed economics, which was identified by the French economist Thomas Piketty in Capitalism in the 21st Century. We are reverting to the inequities that have characterised capitalism in the past.

As Reich points out, that is because the 'freedoms' applied to markets and corporations do not extend to organised labour. Workers, at least in America, have had their freedom to organise or join unions savagely attacked for half a century, usually by surreal claims that they are attacking 'free enterprise' and democratic liberty. As Reich notes, it is all a ruse for powerful interests to reorganise the market to suit their own interests, an agenda so successful that the inequities are now starting to threaten the fabric of American society.

Reich argues for a rethink on property law, monopoly power, business and labour contracts, bankruptcy laws and the efficiency of government enforcement, which is reasonable enough (and probably won't happen).

While we are at it, let us dispense with the ideological spectrum that characterises modern politics: between pro-capitalists (neo-liberals) and pro-government proponents (variants of socialism or communism). It is time to start again; jettison 19th century political theories.

For one thing, there is no such thing as capitalism. Capitalism is not defined by markets, they have existed for thousands of years. And the way capital is formed in so-called capitalist countries varies so widely that the term is all but meaningless. Consider, for example, how different stock and bond markets are in different capitalist countries. Or the fact that the fastest growing free market country of the last 30 years, China, is nominally communist.

It should be realised that the choice is not between government and free markets, it is between good and bad government (often determined by engineering competence). The sooner all economists are sacked and forced to get real jobs, the sooner we can get on to looking at what really matters.

 

 

David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English Literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Topic tags: David James, economists, capitalism


 

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Existing comments

What’s in a name when some never learn history’s lessons anyway? China and Vietnam learnt, and ditched their communist-inspired centralized economies. Deng Xiaoping’s 1978 economic reforms lifted millions out of poverty and China became an economic powerhouse. The 1986 Doi Moi reforms saw Vietnam become one of the world’s fastest-growing economies. Venezuela didn’t, and embraced Hugo Chavez’s “Socialism for the 21st century”. Notwithstanding having the world’s biggest oil reserves, Venezuela is now bankrupt and its people starving. Chavez had been cheered on by Australia’s champagne socialists—Phillip Adams and Natasha Stott-Despoja—who invited Chavez to Australia as “a source of inspiration and ideas.” Britain’s Treasury promoted the disastrous European Monetary System; failed to predict the GFC (Hayekians and devotees of other Austrian economists did, and published models predicting it); and predicted economic disaster with Brexit. Writing about Treasury’s “ideological stupidity”, Jon Moynihan notes that in order to be hired by Treasury, Bank of England, LSE, IMF or OECD, one must complete Oxford’s Politics, Philosophy and Economics course, where students are told that “any non-Keynesian response” will be marked down. Chavez-admirer, Jeremy Corbyn, now leads British Labour. “Those who don’t know history are doomed to repeat it.”
Ross Howard | 29 October 2017


Bravo! "... the illusion that economics is a science..." How wonderful to see this written by someone who knows what he is talking about.
Frank | 30 October 2017


I'm not sure I could be described as a conscientious housewife, the kind who is unwilling to throw away anything that can serve a purpose. My housekeeping bill would be a lot smaller if I was. When I visited China a few years ago, one striking aspect was the rampant capitalism of this communist country. But then Chinese cooks leave hardly any part of a duck unserved.
Pam | 30 October 2017


I discovered this the hard way, while writing an essay recently for a degree course assignment. The essay was to have tackled whether (and if so, how) capitalism might continue without growth on a planet with finite resources - i.e. is growth an essential component of capitalism, or merely accidental to it. But my research reading dug me deeper and deeper into the underlying question: what - actually - IS capitalism? Most of my paper became devoted to devising a working definition of one of the major premises posited, since nothing satisfactorily coherent could be found among the economics tomes. In my investigations I was reminded of a comment by a lecturer many years ago, that some arguments are constructed in the same way lumberjacks might cross a river in which felled timber is floated downstream - simply hopping from log to convenient log until you reach the other bank. As for lumberjacks, so for economists, it seems.
Richard Jupp | 30 October 2017


The fact that capital is formed in different ways in different countries (and indeed in different markets) or that markets have existed for thousands of years is no sound reason to say capitalism does not exist. Likewise, it is not accurate to disparage economics as "not being a science" - it is simply inherently far less accurate a science than the classic physical sciences because it is about human behaviour writ large. Having said the above, there is no doubt that world economics in the macro sense rests on raising and deploying capital, in order for there to be markets in goods and services, whether raised under a centralised government or so-called free enterprise by individuals or by corporations with shareholders. The idea of market vs government is false, better use the terms "wet" or "dry" government.Trouble is, politicians at least here don't follow economic principles, because they are ignorant of them and follow party ideology or pork barrelling instead. Throw-away lines about econometrics -while admitting it has serious limitations - merely pander to populism, and are no substitute for more insightful comment.
Dennis | 30 October 2017


Bravo again! It was a dark day when marketing and business were elevated to university studies. The sooner they are booted out of the universities the better!
john frawley | 30 October 2017


A wonderful critique. For those who want to explore the nonsense that is neo-classical economics could read ch 8 of my book, the Cult of the Marker: Economic Fundamentalism and its discontents. The economic system is a sunset of the social system with its formal and tacit rules. It is a complex system which defies simplification. Consequently all policy decisions are experiments to be evaluated against multiple criteria. The experience of the last 30 years and the rising political unrest in developed countries demonstrates that the neo-liberal experiment has failed.
Lee Boldeman | 30 October 2017


They talk about basis points, hundredths of one percent. Why? What is 0'01 the basis of? Or 0.0001?
Gavan | 30 October 2017


While I sympathise with the tenor of the article and its first post, both lack an understanding of Catholic Social Teaching, which has resonated with Keynesian solutions since the time of Pius XI. This is not to position the cart before the horse of possessive individualism, to which the author trenchantly objects, nor to hold up a candle to its antithesis that we call dialectical materialism. However, both of these concepts, which do not stand independently of the discipline we call politics, to which Dr James also objects, survive as cardinal points of the subdisciplinary framework we call political economy, precisely because their nomenclature and purpose help navigate through competing policy frameworks that do not only uphold the electoral systems we call democracy, but also enable vast numbers of global citizens to express a choice relatively peacefully as well as freely in presumed full-knowledge of how the economy works and its potential disastrous effects, especially on the despised and forgotten of the world. Perchance this why David James has a PhD in English Literature, as well as an illustrious record of achievement in musical comedy, instead of a fuller understanding of the state and changing statist roles in the economy.
Dr Michael Furtado | 30 October 2017


I agree with David that the classic definition of capitalism is a nonsense. Those so called communist states were classic capitalism. They confiscated assets, they disallowed competition, they accumulated capital in this way. The Sherman Acts in the US were designed to minimise the anti free market tendency of capitalism. Anyone with a basic understanding of how shareholder capitalism works would understand very clearly that such capitalism is actually the antithesis of a free market. As Adam Smith said the value of all things is the value of the labour required to produce it. Share market capitalism and the ability to raise money in almost unlimited amounts negates the need to make a profit or even pay dividends. Most of the companies on any share market bourse never produce anything, yet they create enough money to pay those running the companies.
An agnostic | 30 October 2017


Committed, as any Jesuit-influenced person ought to be, to bridging the gap between theory and practice (and therefore not to make of Eureka Street a journal that excludes many of those who are drawn to engage in its discourses) I might suggest that Anthony Giddens, for those who may not know him, provides a resounding take-off point of understanding and 'what-to-do-next' for those whose appetites are whetted by the justifiable frustrations with Economics as expressed by David James and various respondents to his article over here. In particular the slim yet excoriating Giddensian book, 'Beyond Left & Right: The Future of Radical Politics' (Polity Press, Cambridge, 1994) has much to offer in understanding the politics and economics of the so-called Third Way. There are also several articles on the internet under his name that are accessible to those who may wish to further their orthopraxis by contributing to a newer and more just alternative to the current capitalist world order.
Michael Furtado | 31 October 2017


Yes. Capitalism is a construction of the class system- those who are raised owners and their defenders- the middle class. There is only one class with a future- the working class.
Brian Smeaton | 31 October 2017


Well said David (again). Indeed, for those interested in more, I also said Sack the Economists https://betternature.wordpress.com/my-books/sack-the-economists/. And noted we are Desperately Seeking the Fair Go https://betternature.wordpress.com/my-books/fair-go/ . Dennis - neoclassical economics is not a science because it fails to engage its theories with observations of the world. It is abstract logic, not science.
Geoff Davies | 02 November 2017


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