Socialist Studies Socialist Studies

Socialist Party of Great Britain - Capitalism In Crisis - Economics in disrepute.

Economics in disrepute.

One of the reasons why economics has fallen into such utter disrepute is the complete lack of understanding of capitalism by politicians and economists who claim to “run the system”. Our late Comrade Hardy, a student of Marx, once related two stories about the type of economist now writing on economic matters for a general audience.

The first story Hardy told was of a City Editor in the late 1970’s who wrote an article stating that “Keynes was dead” because mass unemployment had proved Keynes’s theory wrong. In a reply to a letter from Hardy the journalist admitted that he never studied economics at his university: “All I did was read Keynes”, he said. The other story dating from the late 1980’s was of a female financial journalist in the EVENING STANDARD who had penned an article on the cause of inflation. When Hardy pointed out in a letter to the financial journalist that her theory was wrong she wrote back saying that she did not know anything about inflation because “I only write the stuff”.

Although Keynes bears much responsibility for economics being held in such disrepute, plummeting to lower depths than the vulgar economists Marx derided when he was alive, there is another group of economists who should also be singled out for ridicule. And these are the market fundamentalists, who, from the Big Bang in 1987 onwards, began to hold positions of power and influence in economic university departments, particularly the London School of Economics and the London Business School.

These economists went on to secure well-paid jobs in the City, gained access to the financial sections of all newspapers, held advisory posts at the Treasury and wrote economic policy for the main capitalist political parties while the media slavishly reproduced their pamphlets published when they held “fellowships” for pompous sounding free market institutes. Their view of capitalism is superficial and limited to following the movement of markets and the buying and selling of shares in the City or on Wall Street which they define as capitalism. They have no interest in understanding capitalism in the way Smith, Ricardo and Marx did in the 19th century and their superficiality restrains them to only comment on price movements, what takes place in the financial markets, the monetary policy pronouncements of the Bank of England, the behaviour of Hedge Funds and the financial gambling casinos of the world.

To understand capitalism you have to begin with the commodity, the exploitation of labour-power in the production process. Production is where social wealth is created not the City. However even if economists understood capitalism what policies could they sell to desperate politicians and governments faced with economic crises, bankruptcies and rising unemployment? Keynes rejected the theories of the classical economists (he hated Ricardo more than he did Marx) and wrote off Marx himself as having no relevance for the modern world.

For economists the fault of economic crises is never commodity production and exchange for profit. They blame either too much credit or too little credit; with the Treasury or the Bank of England or the Federal Reserve Bank or the European Central Bank as the causal factor for continued economic depressions rather than contradictory problems at the very heart of commodity production itself, which is where Marx’s analysis in CAPITAL focussed attention.

What brings capitalism out of an economic depression is capital devaluation; capitalists buying factories, housing and unsold commodities at fire-sale prices, the development of new industries and the reduction in wages to the point that labour is attractive to hire again not the intervention of central banks or governments (for a discussion of devaluation in Marx’s writings see CAPITAL VOLUME 3, Chapter 15 section 3 p. 359-368 Penguin 1991).

As a result of Keynes and others like Milton Friedman, economists hold erroneous definitions of money which includes bank deposits; they believe in a “creation theory of credit” where wealth is assumed to be created at the stroke of a banker’s pen and they believe the Bank of England can control the trade cycle either through the interest rate mechanism or by pumping billions of pounds into the economy via the commercial banks. Since the 1920’s monetary policy in capitalism has been in an economic mental institution.

And it is not just mainstream economists who have been taken in the “creation theory of credit”. Here is one of the SWP’s leaders; Joseph Choonara in his book UNRAVELLING CAPITALISM: A GUIDE TO MARXIST POLITICAL ECONOMY, who believes: “Banks play a key role in creating money through expanding credit… (p.98):

He writes:

… for every $100 a bank receives in deposits it can lend out $90, If that $90 ends up in another bank account, that bank can in turn lend out $81…As this process continues the initial deposit creates potential credit of $1000… (Book marks p. 98, 2009.

Choonara’s book may be political economy but it certainly isn’t Marxist. A clear example of the “mystical school of banking” at work, as Professor Cannan once called it, not from a Keynesian or Monetarist perspective but from someone claiming to be “Marxist”!

And of course, the proposition put forward by Mr Choonara is totally at odds with Marx’s labour theory of value (to read a comprehensive refutation of the creationist theory of credit from a Marxist perspective see Hardy’s FINAL NOTES ON CREDIT CREATION socialiststudies.org). When he was alive, Marx bewailed those who described themselves “Marxists”. “If this is Marxism”, he said, “then I am not a Marxist”. However, If he ever came back to see what has been undertaken in his name since he died he would not stop throwing up.

Back to top

Socialist Studies

email: enquiries@socialiststudies.org.uk | www.socialiststudies.org.uk