Zombie Marx and Modern Economics: or, how I learned to stop worrying and forget the transformation problem

There are two versions of this piece: one, here, a conference paper, and the other in the new edition of Jacobin. The Jacobin piece is shorter and stripped of its academic accessories, and much of the section on the value of money, but it’s not entirely an abridged version – I changed the tone a little, and added a Joan Robinson quote someone reminded me of. I’ve had a lot of responses to this, so a follow-up will hopefully follow.

In 2009, UC Berkeley Economics Professor and former Clinton adviser Brad DeLong took a pot shot at our David Harvey on his blog. Headlined ‘Department of “Huh?”’, and beginning “Why neoclassical economics is an absolutely wonderful thing”, the post quotes 11 straight paragraphs from a Harvey essay, which DeLong proceeds to ridicule.

For DeLong, the essay is contentless waffle. It strings together economic concepts without making an economic argument. He would call it “intellectual masturbation”, he writes, except that it “does not feel good at all”. Only in the eleventh paragraph does he find “the suggestion of a shadow of an argument”. Here Harvey argues that the US stimulus package is bound to fail because the deficit needs to be financed by foreign powers, and the amount of Treasury bonds it will be able to sell to the likes of the Chinese central bank will not fund a big enough stimulus. DeLong responds that this is a question that requires a theory of the bond market and interest rates, which Harvey does not provide: “The question is thus not can government deficit spending be financed… the question is at what interest rate will financial markets finance that deficit spending.” [DeLong, 2009]

[More: Zombie Marx and Modern Economics (pdf)]

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Inflation and the making of macroeconomic policy in Australia, 1945-85

Everything you always wanted to know but were afraid to ask…

My PhD thesis is now available here.

Abstract

This thesis traces the impact of inflation on the making of macroeconomic policy in Australia between the end of World War II and the mid-1980s. I take issue with accounts of policy change that focus primarily on ideological change on the part of policymakers. Instead, I present policy as strategic activity within a complex, evolving economic system which is not centred on policy, and in which, therefore, policy does not have a monopoly on initiative.

I draw on Marxian state theory and Tinbergian theory of economic policy to explore why counter-inflationary policy emerged as an imperative for the capitalist state and how it came to play a dominant role in organising macroeconomic policy in general. I also focus in detail on the development of central banking in Australia, drawing on post-Keynesian structuralist monetary theory. The body of the thesis is divided into two parts, one dealing with ‘the long 1950s’ and the other ‘the long 1970s’. Both are treated as periods of transition, rather than of stable policy regimes.

In the ‘long 1950s’ macroeconomic policy was brand new, and the authorities had to build an effective system of macroeconomic management, sometimes against the active opposition of other groups. A contradiction developed between full employment and price stability, and the latter was prioritised because of limits set by the balance-of-payments under the Bretton Woods international monetary system.

The ‘long 1970s’ was a period of crisis and distributional class conflict. The break-up of Bretton Woods and the movement towards flexible exchange rates changed the form of constraint but continued to impose a counter-inflationary imperative. Monetarism provided an organising and legitimating principle for extremely restrictive macroeconomic policy and the abandonment of full employment as a policy goal, even though policymakers were sceptical of its propositions. Finally, I discuss the movement towards deregulation as something which strengthened rather than undermined the central bank’s power to pursue monetary policy.

Pessimism of the will

I’ve reviewed Eric Hobsbawm’s How to Change the World in the new issue of Jacobin:

It is a little bright spot at the end of the penultimate, gloomiest chapter of Hobsbawm’s history of Marxism: at least the albatross of “really-existing socialism” might not hang around the neck of the latest generation to turn to Marx. “… [E]ven today only those in their thirties and above have any memory of the actual years of Cold War.” The idea that Marx was “the inspirer of terror and gulag, and communists… essentially defenders of, if not participants in, terror and the KGB” was no more valid than “the thesis that all Christianity must logically and necessarily lead to papal absolutism, or all Darwinism to the glorification of free capitalist competition.” Most “really-existing communists” in the West had been critics of Stalinism since 1956 (yes, says Hobsbawm, who stayed in the British Communist Party into the 1980s, even “by implication” within Moscow-line parties). But the line that socialism meant Stalin and Mao was always an effective rhetorical strategy for anti-communists, always a way to change the subject whenever socialists were in the conversation. As the Soviet Union and the Great Leap Forward recede into history, surely the shadows they cast over the very idea of a post-capitalist society will lighten. […]

What is going on here?

So Maps was kind enough to link here in an interesting post about what has happened to left-wing intellectual space in New Zealand, and he’s certainly right that as elsewhere much of it these days blooms on blogs. But those who have clicked through must have been disappointed with this particular moribund site.

I’ve had a lot going on since finishing the thesis – some tourism, some house moving, getting a proper job lecturing at Sydney Uni, and best of all getting ready for the arrival of my daughter. But I’m not planning on giving up on blogging. I now think, though, that political blogging is done better as part of a collective project rather than on an individual blog, especially one as low-intensity as this. I’ve promised to contribute to the excellent new Left Flank, and while I have yet to deliver, that’s where I’d like to put any Australian political-economic commentary. Here I plan to keep pottering along posting more of the demi-academic, semi-scholarly and quasi-theoretical stuff from time to time, like the Poulantzas material of the last few posts.

Sometime soon, anyway.

PS. I should say that despite Maps’ description I’m not really into crisis theory, I don’t think traditional Marxian crisis theory has been all that enlightening regarding the GFC, and that I agree with Panitch and Gindin that there are better things for socialists to do than predict the next crisis (or the indefinite extension of this one).

Back into the community

The average payout ratio is 70 per cent, 70 per cent of the $21 billion [profit the big four banks make] goes back into the community. There is a good story there.

– National Australia Bank chief executive Cameron Clyne to the Australian Financial Review, November 22, 2010 [Matthew Drummond: “Clyne turns on peers over banks row”]

It’s surely a sign of the regression of political discourse when a bank chief making a play for ‘the nice guy of banking’ title thinks the size of dividend payouts makes a good case for profits.

Law as unifier of the state

The Poulantzas project 2

Bob Jessop’s book on Poulantzas [Nicos Poulantzas: Marxist theory and political strategy, 1985, Macmillan] helpfully summarises some of the early papers I can’t read as I don’t know French. There’s some useful background on his view of the law which is highly condensed in the translated papers. This, in particular, is useful in clarifying his view of the nature of the ‘internal’ logic of law discussed in the last post:

One of the most pervasive and fascinating influences within modern legal theory has been the neo-Kantian positivism of Hans Kelsen (and the so-called ‘Vienna School’) with its concept of a purely internal Normlogik. This argues that an effective legal order must be hierarchically unified under a fundamental legal norm (Grundnorm) and backed up by effective coercive sanctions. It also declares the state and law to be identical and insists that in any one society only one sovereign, coercive legal order is possible. Indeed Kelsen argued that in any real, ‘sociological’ state there will be many authorities, multitudinous relations of domination, numerous acts of commanding and obeying: only the unity of the legal order justifies us in considering the state as a single system of domination. For the same reason Kelsen denied that the state is a subject which exercises power – its power is simply that of a valid and effective legal order. At best he was prepared to concede that the machinery of state (‘the bureaucratic apparatus’) is the material personification of the broader formal legal order within a nation-state. He also suggested that the division between public and private law is ideological and simply serves to dissimulate private law as located beyond politics…

Not, in fact, where we might choose to begin

The Poulantzas project 1

Nicos Poulantzas in his final book, 1978:

The constructivist image of ‘base’ and ‘superstructure’, which is supposed to allow the determining role of the economic sphere to be visualised after a fashion, cannot in fact provide a correct representation of the articulation of social reality, nor therefore of that determining role itself. It has proved to be disastrous in more ways than one, and there is everything to be gained from not relying on it. For my own part, I have long ceased to use it in analysis of the State. [Poulantzas, 1978: State, Power, Socialism, Verso, p. 16]

Sectoral evolution in Australia

The Reserve Bank’s Bulletin this month includes an interesting little paper drawing an outline of the evolution of the structure of production and employment in Australia over the last few decades. [PDF] Staff economists Ellis Connolly and Christine Lewis provide no surprises – just the clarity of a long view with basic stats. (All graphs below are from the paper.)

Just about everybody works in services these days – more than 85 per cent of the employed workforce. That share has risen fairly steadily since the end of World War II, from just over 55 per cent. In the post-war period the growth of the service sector picked up the slack from the declining rate of growth in agriculture; since the late 1960s it has taken over from manufacturing too. In absolute terms, this is a story of service sector expansion rather than decline elsewhere: net employment growth since the war has been almost all about services. Mining has remained steady at around 1 per cent of employment.

When it comes to output shares rather than employment, the picture looks different. Manufacturing and agriculture shares in nominal value added are about the same as their shares of employment. But mining’s share is much bigger, at 7 per cent over the past decade, while services’ share is lower at 78 per cent. Mining is extremely capital intensive, and hence accounts for a much bigger share of value added and investment than its share in employment would suggest, while services tend to be more labour intensive.

When a sectoral category makes up around four-fifths of the economy, it loses much of its usefulness as a category. Connolly and Lewis break services down into five sub-sectors, and the data begin to get more interesting. The distribution and utilities sector – i.e., services related to moving and selling goods, energy and communications – has declined in its employment share since the 1960s. (It would be interesting to see a further breakdown of a category that includes everything from wastewater to supermarkets and internet service providers.) The employment share of social services enjoyed a great leap in the 1970s – and especially the Whitlam years – from around 13 per cent to 20 per cent, and climbed more slowly over the next three decades to reach 25 per cent, to become the largest service sector today. This includes education and health care, public and private, as well as public administration, police and so on.

Business services (including finance, insurance and real estate) have grown more steadily, but especially rapidly in the 1980s and 1990s before stabilising at around 17 per cent of employment over the 2000s. Personal services – restaurants, hotels, cinemas, etc. – had a modest burst of expansion in employment share in the 1980s and early 1990s, taking them from a steady 10 per cent to a steady 12-13 per cent since. Construction’s share has remained between 6 and 9 per cent since the 1970s, though responsible for much of the growth in the share of services as a whole over the 2000s.

Although these shifts are long-run trends, they have run faster at some times than others. The most interesting thing Connolly and Lewis do with this data is to generate ‘structural change indices’ to show the waves of change. These indices measure the average movement in industry and state shares of nominal and real output, employment and investment, to give a simple indicator of structural change over the previous five years. Such a measure is only as meaningful of the categories into which the industry structure is divided – it clearly doesn’t capture movements within the categories. The figure shows two major waves of structural change since the 1960s – one during the 1970s, and one in the late 1980s and early 1990s. (Note that the indices are backward-looking in that each year’s figures compare the average shares of the previous five years with the average shares of the five years before that.)

In terms of real output and employment, the last decade has apparently been more structurally stable than the previous three decades, though not as stable as the 1960s. Things look different in nominal terms, largely because of the effect of booming commodity prices on the value of mining output. Connolly and Lewis expect the commodities price boom to have a delayed impact on the structure real output through the great increase in mining investment over the last half of the 2000s.

The structural change index for employment shows only one wave of accelerated change, rather than the two apparent with output, peaking at the turn of the 1980s, though never returning to the low level of the early 1960s. The 1970s were, of course, the decade that ended full employment. Connolly and Lewis make no connections between the structural shifts they chart and macroeconomic developments, but there would certainly be connections to draw. The reconfiguration of the last quarter of the 20^th century was far from painless: manufacturing job growth collapsed long before services growth replaced them, and even in the 2000s unemployment remained well above that of the postwar period.

Connolly and Lewis include ‘economic reform’ among the factors behind the structural changes – in particular, deregulation of service industries and reduction of trade protection. It would be wrong to overemphasise the impact of policy, however – it probably had more impact on the timing of the ‘waves’ than on the long-run processes themselves. The growth of low labour cost manufacturing in East Asia inevitably undercut the profitability of many kinds of manufacturing here, while the proportion of incomes spent on consumer services has long shown a tendency to rise with those incomes.

Although mining accounts directly for a small proportion of output and a tiny proportion of employment in Australia, it is now responsible for more than half the value of exports. The conceptual framework used by Connolly and Lewis has its limitations in understanding the meaning of mining. First, as they note themselves, the sectoral break-down they use misses the cross-sectoral linkages through which mining activity has its multiplied effects: through services – especially construction – and manufacturing oriented towards the mining industry. The statistics on the inter-state shifts in population and output towards Western Australia and Queensland capture these effects of the mining boom better.

Second, to talk of ‘the structure of the Australian economy’ may give a misleading impression of the coherence of the economic system at a national level. To what extent does it make sense to think of mining exports as ‘national’ exports, when they are undertaken by multinationals funded primarily by international capital, employing relatively few people here? In the days of a fixed exchange rate, with foreign exchange centralised in the hands of the Reserve Bank, it was more natural to think of exports earning the currency needed to pay for imports. Now, there is no centralised nexus of international trade. This is not to say that mining is an enclave completely isolated from the mainly urban economy of the Southeast, but that the links are complex. Perhaps the most direct effect of the mining boom on the living standards of Sydneysiders and Melburnians comes through its effect on the exchange rate, cheapening foreign goods and services. The tax take from mining is another – and still a relatively undeveloped resource.

Way off license

Pic borrowed from the linked article - Mikey Hamer/Lucien Alperstein

A cool piece in Cyclic Defrost about the temporary, nomadic venues of Sydney’s out music. One of the places mentioned is a few blocks from my house, it was awesome to stumble upon it one night. You could buy beer and red wine at more-or-less cost price and bands and audience sat around on the same concrete floor. A good proportion of the audience would be on the line-up at some point. Following the links from flyer to flyer, I took my visiting brother to another place in Newtown, which turned out to be someone’s flat. “It’s like they forgot everything that makes music good,” he said, “but it’s interesting to see the kind of people that get into it.” Actually a lot of the music is pretty good, and although Sydney has a reputation as a musical wasteland it seems to me like the good swampy kind of wasteland and no longer a desert.

The Poulantzas project

Nicos Poulantzas in days before smoking in the office was structurally selected against

Now that I have some spare time on my hands, one of my medium-term projects is to do a proper engagement with Poulantzas, with the aim of sorting out my own theory of the capitalist state, and of economic policy in particular. I draw on Poulantzas a bit in my thesis, borrowing useful ideas without dealing with his vision as a whole. Now I want to go back and sort out exactly what I think. Poulantzas is one of those theorists who is incredibly helpful even when I disagree with points or even think the framing itself is misguided. He asks the right kinds of questions, and shows what a theory of the capitalist state has to do, even when his own particular constructions (which he kept radically revising throughout his short career) are problematic. Thirty or forty years on, he is still the person to engage with in Marxian state theory – a tradition that reached its high-water mark in the late 1970s, and never died but faded away.

Poulantzas is also difficult to read, and I don’t think it’s the translation. He adopts the language of other theoretical systems – first Sartre’s, then Althusser’s – of which he simply assumes knowledge. So there are a lot of sidetracks to do in dealing with him. On the other hand, once the language is understood, he is a very clear and systematic writer. And the fact that most of his exposition takes place through engagement with other writers is a good thing – in dealing with Poulantzas, you are also dealing with the Marxian ‘classics’, with Gramsci, Sartre, Althusser, Ralph Miliband, Perry Anderson, and Foucault.

The book Paradigm Lost: state theory reconsidered, edited by Aronowitz and Bratsis [2002], has some great chapters on why Poulantzian state theory – along with the work of Miliband, which I’ll also discuss – receded as a research program and why it deserves to be revived. (It also makes clear why Poulantzas and Miliband – their names linked mainly by the polemics they directed against one another – can be seen as part of the same program.) Leo Panitch, in his chapter, “The impoverishment of state theory”, stresses that there was substance and systematicity to the state theory of the 1970s that was new to both social science and the Marxian tradition, especially in its attempts to deal with modern advaced capitalist democracies:

It needs to be stressed today that we did not at all see ourselves as falling back on a prefabricated Marxism; the new theory of the state had Marxist roots but it was founded on the notion that nothing like an elaborated and coherent theory of the capitalist state (in contrast with the complex array of concepts and tendential laws that constituted Marxian economics and historical materialism) had been fashioned either by Marx himself or by his successors—up to and including Gramsci. And the new theory was concerned to displace the narrowly ideological official Marxism of the Communist parties. [p. 90]

My plan, then, is to work through Poulantzas’s major essays and books and some of their reference points – with particular attention to his theory’s relevance for the development of economic policy in the twentieth century. Economics is sometimes said to be a weak point for Poulantzas – but that gives me something to do.