C. Flower paid me the complement of penning a critique, entitled New Bottle , Old Keynesian Wine, of my Shellbourne Hotel talk (14th September 2011) as well as of the essence of our Modest Proposal. I reproduce this critique here in its entirety, followed by my reply. Before anything else is said, let me thank C. Flower for taking the time to script what is a hugely important critique.
[E]ssentially, for all [of Varoufakis’] stance as critic of mainstream economists and of the ECB and EFSF, his own viewpoint is still that capitalism can be made to work, by adopting the right technical solutions. He advocates an ECB 20 year bond to clear all debt above the level of the Maastricht agreement, along with ECB-backed investment bank that raises the quantity of finance put in to European firms. I recommend his talk, which gives a Marxist-influenced historical account of the development of finance capital that is well worth reading, as it shows the various means by which capitalism has borrowed from the future and produced fictitious capital in an attempt to sustain a severely ailing, terminally sick system which has reached the end of its historical tether.
[BUT] I’m forcibly struck by what Varoufakis leaves out of his analysis. He describes well the way that a massive credit bubble has been created, in an attempt to sustain the system, and is now collapsing, leaving every bank in Europe bankrupt. He also describes well the panic and bewilderment of EU financial “leaders”. But there is no reference to the shift of manufacturing to the east and to the enormous increase in global productive capacity and increased costs of production that have come with technology. Fundamentally, the world economic crisis is one of overproduction and depressed average rate of profit, not of underinvestment. A couple of Chinese factories, the size of large towns, can produce enough mugs for the entire needs of the world, in short order. But there is so much highly competitive production, so many companies driven out of business, that on average, very little if any profit is made. Capitalism also constantly moves money from the many to the few, with greater and greater inequality, and this also chokes up the economy as the majority of people have less and less to spend. But redistribution by taxation, on its own, can’t overcome the problems of overproduction and reduced profit rate. And while capitalists are in power, they will resist any such redistribution. Because profit comes from peoples’ labour (physical and mental), the only way that capitalism has of raising the rate of profit is to cut wages and make people work harder (reduced retirement age, longer hours, intensified work rates). We are seeing this being applied across Europe and the US. We have immense global productive capacity, and an anarchic and crisis-ridden means of financing and organising it.
So at the very historic point at which feeding, educating and housing everyone appears to be attainable, huge numbers of previously well-off people are being thrown into poverty. The answers lie not in the issuance of more debt and in the financing of more and more competitive investment. Before minding banks, we need to safeguard production, and peoples’ skills. Production needs to be organised and distributed so that enough is produced to meet everyone’s needs – if that can be done in a two or three day working week, people should be able to head off and play with their children, play sports and music, go back to education or whatever they need. For this to happen, the main means of production – factories and land, and mineral and oil resources – need to be in the control and ownership of the majority, and developed in the interests of the majority.
This is something I’ve never seen Varoufakis say and I’m pretty sure I never will.
Utilising my right-to-reply, I shall start by conceding that neither my Shellbourne Hotel speech nor indeed the text of our Modest Proposal puts emphasis on capitalism’s chronic ills. Having said that, it is not true that I have not said (or never will say) anything on the subject. As proof, below I offer a small, extremely eclectic, anthology of relevant quotes that absolve me, I trust, of the alleged sin of omission. So, why is it that in my Shellbourne Hotel talk I left most of these, strongly held, thoughts out, confining them to the margins of my musings?
The answer is: Because these are not revolutionary times. Some may think that we have arrived at the moment in history when it is incumbent upon progressives to issue a clarion call for capitalism’s replacement by a rational, and thus fairer, way of organising social production. That a revived socialism’s moment has come. It is not my view.
Why not? First, because the Left remains defeated, following 1989. Our vision of that more rational socio-economic system with which to replace really existing capitalism remains blurred and unconvincing. Secondly, and crucially, because a period during which capitalism is in freefall is not a period kind to progressive projects. The only forces that can gather pace, organise and conquer are the forces of xenophobia, discord and regression. That was what 1929 taught us. It was also a lesson that many of us learnt, the hard way in the UK, during the late 1970s and early 1980s when the rise of debilitating unemployment (under Mrs Thatcher’s able guidance) wiped out all social opposition to the spivs-in-power and to a massive financial-real estate bubble that effected an equally massive redistribution of income under the disguise of modernisation and ‘rationality’.
If I am right, the human cost of allowing capitalism to shoot itself in the foot (the way it is doing today) will be enormous and, in the end, when the dust has settled, there will be too little energy left among those who could effect progressive change to get on with it.
For this simple reason, I have become an advocate of the importance of saving structures that I disdain; e.g. the eurosystem. For if the euro collapses today, a post-modern 1930s beckons during which the nastiest part of Europe’s underbelly will prevail. In short, I feel it in my bones that, just like during the Second World War progressives and enlightened conservatives had a common task (to unite against Nazism), so too now we need urgently to build a broad coalition that arrests the freefall. Once it is arrested, and this is precisely the purpose of the Modest Proposal, we can then resume the debate amongst members of that coalition, even our feuding, regarding what comes next; what the Good Society ought to look like.
In summary, the Modest Proposal is not a blueprint for a better, rational Europe. It is rather a blueprint for arresting the freefall into a black hole at the bottom of which only xenophobia and aggregate misery lies. It seeks to utilise existing, often ludicrous institutions (e.g. the EFSF, even the chronically regressive ECB) to that purpose. I may be wrong in my estimation of what needs to be done. But, in my defence, it is not for wont of ignoring capitalism’s inherent irrationalities.
The promised short anthology of my views on capitalism’s inherent flaws follows:
- In 1991 I published a book, Rational Conflict (Blackwell), devoted to the argument that conflict, inefficiency and illiberty are the inevitable (and thus rational) outcomes of capitalism’s fundamental irrationality.
- In 1995 I concluded a paper in Science&Society (entitled “Freedom within Reason“) thus: “Of course we have all oppressed and we have all been oppressed at some stage of our lives. But the crucial point is the presence of systematic patterns of exploitation built into relatively primitive social relations. The structure of such social relations feeds into the constituents of unfreedom rendering constitutional, or axiomatic, liberty symbolic of what is unattainable under the existing socio-economic organisation. If Reason is the product of History, as Hegel would claim, then capitalism sets limits within which Freedom and Reason cannot breathe.”
- In my 1998 book Foundations of Economics: A beginner’s companion (Routledge) I argued (see Chapter 10) that the social democratic ambition to civilise capitalism runs into a brick wall because “… attempts to temper capitalism’s hunger for inequality damage the machinery of capital accumulation which keeps it going. Thus they will never succeed in civilising the beast because the State’s interventions will simultaneously be too feeble as a counter-weight to the systematic exploitation which goes on and too much since they will be hindering the natural self-correcting mechanism of capitalism (i.e. the periodic surges in unemployment and the resulting inequity/poverty).”
- Further into the same 1998 book I wrote: “[International capital’s] continuing capacity to extract … ‘rents’ depends on a patchwork of highly industrialising formerly underdeveloped countries which coexist with massive Third World immiseration as well as the de-industrialisation of the older industrial regions of the First World. Through this prism, international trade is one of the planks of an international capitalist system which thrives on exploitation and wastes monumental proportions of the world’s human and natural resources.”
- In another essay also published in Science&Society (2008) and entitled “Capitalism According to Evolutionary Game Theory“, I wrote: “The notion that capitalism is efficient but unfair is dismissed angrily, replaced by the portrait of a social system which is one evolutionary stage behind the productive capacity of the machinery that it, itself, brought into being. Due to this ‘evolutionary backwardness’, capitalism wastes human resources (in the form of chronic and fluctuating unemployment), devalues humanity (by reducing our relations to commodity fetishism), restricts real liberty for most, and requires human sacrifices upon its altar (e.g. war) in order to maintain some degree of compatibility between (i) what the economy can produce and (ii) what consumers have the purchasing power to absorb.”
- Building on this argument, Chapter 4 of our recent book Modern Political Economics: Making sense of the post-2008 world (Routledge, 2011, co-authored with J. Halevi and N. Theocarakis), claims that: ” No one designed capitalism. It simply evolved, liberating us in the process from more primitive forms of social and economic organisation. It gave rise to machines and methods that allowed us to take over the planet. It empowered us to imagine a future without poverty where our life is no longer at the mercy of a hostile Nature. Yet, at the same time, just like Nature spawned Mozart and HIV using the same indiscriminate mechanism, capitalism also produced catastrophic forces of discord, alienation, and environmental degradation. It generated acute crises (as the next chapter will illustrate) and produced, in the same stride, new forms of wealth and of deprivation. In evolutionary terms, capitalism, and in particular the way it hinges production onto the labour contract, is too primitive a system. As the next chapter will argue, calamities like the Crash of 2008 and the collapse of the 2009 Copenhagen Conference on climate change are the tip of the melting iceberg. Less well seen is capitalism’s wastefulness of human and natural resources, as well as its encroachments on genuine liberty. The main reason? Because capitalism is one evolutionary stage behind the productive capacity of the amazing ‘machinery’ that it, itself, brings into being. Humanity’s current task is, thus, to do that which a virus cannot: To design our continued evolution and steer its path in a direction of our choosing, if only for the planet’s sake.”
- Finally, in my latest book, The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy (Zed Book, 2011), I wrote (see Chapter 2): “[I]f value requires human agency, then we just spotted a major source of instability buried deep in the foundations of our market societies: The more successful corporations are at replacing human labour with magnificent machines, and at disciplining human labour to perform with machine-like efficiency, the lower the value that our societies will be producing. They may churn out huge quantities of goods and shiny artefacts that we all crave. Only the value of this avalanche of goodies will be tending to zero, just as the machine economy in The Matrix is a value-free zone, despite the vast output produced by its mechanised workforce.”
 Let it also be said that I reject the simplistic view that 1929 and 2008, the two major crises of capitalism, can be adequately explained as the outcome of the falling rate of profit. Not wishing to bore you here more than I have already done, interested readers can refer to Chapter 5 of Modern Political Economics: Making sense of the post-2008 world, Routledge, 2011