Lambert here: The Third Way makes a comeback?
David Sloan Wilson, SUNY Distinguished Professor of Biology and Anthropology at Binghamton University. interviews Geoffrey Hodgson, research professor at Hertfordshire Business School, University of Hertfordshire, England. Originally published at Evonomics.
David Sloan Wilson interview with Geoffrey Hodgson
The failure of laissez-faire and centralized planning, revealing the need for the Third Way of entrepreneurship and all other forms of positive social change, should exist at all scales of governance. This conversation with Geoffrey Hodgson focuses on the national scale. Hodgson is a foremost scholar of economics and social thought. His many books include Is Socialism Feasible? Toward an Alternative Future, Wrong Turnings: How The Left Got Lost, and How Economics Forgot History: The Problem of Historical Specificity in Social Science. More specifically, he is a leading scholar of evolutionary theory in relation to economics and social thought, including books such as Conceptualizing Capitalism: Institutions, Evolution, Future, From Pleasure Machines to Moral Communities: An Evolutionary Economics Without Homo economicus, and Darwin’s Conjecture: The Search for General Principles of Social and Economic Evolution (with Thorbjørn Knudsen). It would be hard to find a person better qualified to comment on the thesis of the Third Way at the national scale.
David Sloan Wilson: Welcome Geoffrey! We have had many conversations and I look forward to engaging you in this one.
Geoffrey Hodgson: Thank you, David. It is an honor and pleasure to continue our dialogue.
DSW: To begin, please comment on the Vision Statement of this series. How would you like to go about exploring the thesis at the scale of national governance?
GH: I am very much in agreement with your Vision Statement. It chimes perfectly with my view that it is vital to escape the standard binary debates of state versus market or public versus private ownership. Regrettably, these two inflexible ideologies still pervade our politics today. Yet states and markets are mutually interdependent: you cannot have one without the other. The question of public versus private ownership is a pragmatic issue: we should experiment and determine what works best in particular circumstances. The crude state versus market dichotomy is misconceived. It is more vital to create a system of institutions where the freedom to experiment and evaluate outcomes is possible, where cooperation, mutual aid, and social solidarity are encouraged and celebrated, and where human rights and liberties are defended.
DSW: The need to experiment! A hallmark of the Third Way! Based on your books and other readings, I know that governance at the national scale spans the full range from an emphasis on centralized planning, an emphasis on laissez-faire, and a middle ground that at least crudely approximates the Third Way. What are some of the most extreme examples of governments that have relied upon centralized planning?
GH: In my book on Is Socialism Feasible? I show that most of the socialist movement has been biased towards centralized control. This was true of the Fabian socialism of Sidney and Beatrice Webb. It also applied to G. D. H. Cole, an influential intellectual in the British Labour Party, who paid lip-service to “guild socialism” but retained nationalization and centralization.
The goal of centralized control is not confined to Marxists or other communist revolutionaries. Even the Communist Party in the former Yugoslavia, when it tried a brave experiment of so-called “self-management” by workers in their workplaces, could not resist the imposition of central restrictions and controls, which contributed to the ultimate failure of the system. The Chavismo socialist regime in Venezuela has not nationalized the entire economy, but even its partial attempts at centralized control have had devastating political and economic consequences.
Famous attempts at centralized planning include the Soviet Union, Mao’s China, Castro’s Cuba, and North Korea. In every case the attempt to plan everything from the center proved unworkable. Often, to get over this, their regimes would attempt to devolve decisions or to encourage limited markets and a small private sector. But then the center would fear a loss of their political control through the encouragement of markets and private entrepreneurship. They would react by reinstating central power. In the Soviet Union and China, this cycle was repeated several times over.
DSW: Amazing. If that doesn’t demonstrate the failure of centralized planning, what would? In the Vision Statement, I say that centralized planning doesn’t work because the world is too complex to be planned and executed by any group of experts. In addition, centralized planning suffers from a second flaw by concentrating power in the hands of a few elites, who end up planning for their own benefit rather than the common good. Do these always go together? Are there any examples of regimes that succeeded at trying to benefit the common good and merely failed because the problems were too complex?
GH: I fully agree with your Vision Statement on this. Problems of complexity, with devolved and often tacit knowledge, are paramount, especially in modern economies. These issues are not given sufficient emphasis in either mainstream or heterodox economics. Mainstream economists often over-simplify, because they want to put everything in a mathematical model. Many (but not all) heterodox economists have ignored these problems because ideologically they are socialists who favor planned economies.
All attempts to concentrate political and economic power in the hands of the state, without suitable countervailing power and necessary checks and balances, have had devasting consequences. It is estimated that 65 million people died in China under Mao, 20 million in the Soviet Union, and about two million in Cambodia under Pol Pot.
All these regimes starting with noble intentions, with a will to serve the common good. It seems that leaders such as Lenin, Mao, and Chávez genuinely wanted a fairer and less exploitative society. A few weeks before the 1917 Bolshevik Revolution, Lenin wrote his State and Revolution, where he outlined an egalitarian and ultra-democratic socialist future. This was quickly abandoned when he came to power. This was not simply because Russia was plunged into civil war. It was also because of the devastating attempt to create a centrally planned economy, starting in 1918. Expropriations and forced labor required iron determination and the suppression of all opposition.
Lenin and Mao came to power by military and insurrectionary means. Of necessity, a revolutionary process requires ruthless leaders, lacking qualms about the absence of liberal democracy. By contrast, Hugo Chávez came to power in Venezuela through a democratic vote. Nevertheless, his enthusiasm to help the poor and build socialism led him to remove constitutional checks and balances and to stifle the press. The system slid toward dictatorship, with disastrous results.
Some socialists respond by saying that these regimes were not truly socialist, or that the mistakes were caused by adverse circumstances, or by the wrong people getting into power. Such responses are commonplace but naïve. Just as capitalism has inherent tendencies, or to use Marx’s phrase, “laws of motion”, so too have bureaucracies and centralized regimes. These “laws” inevitably limit democratic accountability and create perverse incentives for bureaucrats and planners. These adverse forces are explored, for example, in the famous book on Political Power by Robert Michels, and in the analysis of socialist regimes by János Kornai.
The “that regime was not truly socialist” response ignores both the historical precedents and the analysis of how concentrations of political and economic power lead to despotism. The respondents list the ills and defects of existing capitalism, including economic inequality, war, and environmental degradation, but ignore the defects of actually existing socialism. They compare the real world of capitalism, with all its failings, with an imaginary socialism where all defects are assumed away. Instead, they should compare real-world capitalism with real-world socialism. Although there have been tyrannies under capitalism and socialism, real-world democratic capitalist regimes have had a much better record on human rights than any real-world socialist system.
In sum, the “laws of motion” of centralized socialist regimes will always lead to despotism and abuses of power. They are an inevitable result of an over-concentration of power in the hands of the state. Socialism by definition involves widespread common ownership. The only viable socialist alternative would be a system of autonomous worker cooperatives. Unlike the system in the former Yugoslavia, this would involve cooperatives with ample legal autonomy, so that they can accumulate their own capital, set their own prices, and buy and sell with others according to contracts. Such cooperative experiments have been tried, as with the kibbutzim in Israel. But they are not popular among many socialists, because of their habitual fear of markets and competition. Yet the only humane and viable socialism requires both.
DSW: Now let’s focus on the other end of the continuum; governments that placed an emphasis on laissez-faire.
GH: Libertarian, free-market solutions, with a minimal state, are just as utopian as socialist central planning. Free-market libertarians over-emphasize the possibility of spontaneously arising arrangements in complex, large-scale economies. By contrast, the history of capitalism shows that the state has often intervened to constitute or facilitate market arrangements. Thousands of years ago, the state was involved in the creation of money and coinage. As I pointed in my Conceptualizing Capitalism, China has the earliest record of a market in around 3500 BC. Even in this ancient case the state granted permission for the market and imposed regulations.
From the end of the seventeenth century, the state has been involved in the development of some of the financial institutions at the core of capitalism, including the creation of national banks and the development of financial markets, including markets for debt, which underpinned greater borrowing to finance industrialization. In the nineteenth century, the state was crucial in the regulation of labor markets and the development of the legal templates for corporate status. These historical examples show that markets need viable and well-governed states, as Adam Smith emphasized in his Wealth of Nations.
For many liberal thinkers, including John Maynard Keynes and Michael Polanyi, the state is also necessary to curb the excesses of a capitalist economy, including the possibility of financial destabilization and the tendency to greater economic inequality.
DSW: Let’s dwell more on Adam Smith. His metaphor of the invisible hand is invoked again and again by libertarians, yet I know that he invoked the metaphor only three times in all of his writings. Who was the real Adam Smith? What would he think of the thesis of my Vision Statement?
GH: Adam Smith was a much more nuanced thinker than some market libertarians presume. In both his Moral Sentiments and The Wealth of Nations, Smith argued that while economies harness the self-interest of agents, they cannot work by self-interest alone. Also, a state is needed, guided by principles of justice, to regulate markets and provide some services where markets are unable or inadequate. The invisible hand metaphor signifies the important idea of spontaneous and undesigned order, but Smith never relied on that alone.
DSW: Let’s also spend some time on two other libertarian heroes, Friedrich Hayek and Milton Friedman. I’ve learned enough about them to know that they developed very different—even diametrically opposed—theoretical edifices. Hayek’s spontaneous order is nothing like Friedman’s rational actor model. Yet, both are usually mentioned in the same breath because they support minimal government oversight of markets. What’s that about and what has been the impact of libertarian policies—in the USA under Reagan, in the UK under Thatcher, and worldwide?
GH: You are right to point out that while Hayek and Friedman supported similar policies, the theoretical underpinnings of their arguments are different. But together they have inspired a global initiative to reduce the economic role of the state, to reduce taxes, and to deregulate the economy. In practice, while Thatcher and Reagan reduced the tax burden for the rich in the UK and US respectively, overall tax levels and state revenues did not decrease. Reagan increased military spending, having the Keynesian effect of stimulating effective demand through state activity. When Thatcher came to power in 1979, she slashed public expenditure, but this led to a severe recession in the early 1980s. The policy was quietly abandoned, and she moved her focus onto privatization instead – a proposal that was not even mentioned in her 1979 manifesto.
Globally these ideas have remained influential. In the 1990s, even more, moderate leaders such as US President Bill Clinton and UK Chancellor Gordon Brown were persuaded by policies of “light touch” regulation of the financial sector. These added to the volatility of financial systems and to the subsequent severity of the Great Financial Crash of 2008. We are still reaping the consequences of these mistakes.
DSW: I’ve read that the nation of Chile became a testing ground for Milton Friedman’s ideas in the 1970’s. How did that go?
GH: In 1973 General Augusto Pinochet seized power and overthrew the democratically elected government of Chile. He imposed a vicious dictatorship that killed and tortured thousands, and he adopted Chicago-style free-market policies. He privatized (mostly inefficient) state enterprises and pushed down wage levels. State support for health, education, and housing were also cut. The distribution of income and wealth became much more unequal. The Chilean rich and large international companies were the principal beneficiaries. Military expenditure was maintained. Pinochet’s political and economic policies were far from successful in terms of human welfare.
To his credit, Friedman stated in 1991 “I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime.” Yet Hayek failed to condemn its abuses of human rights. Both visited the regime with the excuse that they were merely giving technical advice. I do not think that “technical advice” and (tacit) moral endorsement cannot be so easily separated, especially when dealing with dictatorships.
DSW: OK! We’ve covered the two policy paradigms that don’t work. Now I’m excited to learn from you about governments that have done the best job approximating the Third Way.
GH: The best examples we have of countries that have harnessed markets and government together to serve the common good are the Nordic countries, namely Denmark, Finland, Iceland, Norway, and Sweden. These are social-democratic mixed economies. They are not socialist in the classical sense: they are driven by financial markets rather than by central plans, although the state does play a strategic and guiding role in the economy. They have systems of law that protect personal and corporate property and help to enforce contracts. They are liberal democracies with checks, balances, and countervailing powers.
Nordic countries show that major egalitarian reforms and substantial welfare states are possible within prosperous capitalist countries that are highly engaged in global markets. Their success undermines the view that the most ideal capitalist economy is one where markets are unrestrained. They also show that humane and egalitarian outcomes are possible within capitalism, while full-blooded socialism has always in practice led to disaster.
The Nordic countries are among the most equal in terms of the distribution of income. They do less well in terms of wealth inequality, but they are more equal in that respect than the US. They have scored very highly in terms of major welfare and development indicators. Norway and Denmark have ranked first and fifth in the United Nations Human Development Index. Denmark, Finland, Norway, and Sweden have been among the six least corrupt countries in the world, according to the corruption perceptions index produced by Transparency International.
In terms of economic output (GDP) per capita (in 2016), Norway is 3 percent above the US, while Iceland, Denmark, Sweden, and Finland are respectively 11, 14, 14, and 25 percent below the US. This is a mixed, but still impressive, performance. Every Nordic country has a GDP per capita level higher than the UK, France, and Japan.
Clearly, the Nordic countries have achieved very high levels of welfare and wellbeing, alongside levels of economic output that compare well with other highly developed countries. These outcomes result from relatively high levels of social solidarity and taxation, alongside a politico-economic system that preserves enterprise, economic autonomy, and aspiration.
DSW: Whenever the Nordic countries are held up as a model of governance, there is a rush to dismiss them as not applicable to America. They are small! They are homogenous! Norway has oil! Granted that there is such a thing as path dependence, do you think that it’s possible for nations such as America and the UK to “get to Denmark”, as the political theorist Francis Fukuyama puts it?
GH: It is important to note that the Nordic countries are small and relatively homogenous – ethnically and culturally. All countries are unique and have their own histories. But this does not mean that social democratic policies cannot work elsewhere. The UK was relatively social-democratic from 1945 to 1980. Strong vestiges of social democracy, including its National Health Service, still survive. The NHS has strong public support, and it is relatively efficient and successful.
We need to learn from the positive achievements of the Nordic countries and adapt their policies to different conditions elsewhere. Although the US is much larger, there have been valuable experiments in healthcare, welfare, housing, public transport, and much else, at the state and city levels.
In 1945 Michael Polanyi (the brother of the socialist Karl Polanyi) argued that attention had been diverted from the reduction of economic inequality because “progressive thought was misdirected … toward the idea of nationalization and took little interest in reforms under capitalism.”
This problem persists on the left, which is often besotted by public ownership and an imagined future socialist utopia. On a much more practical level, the Nordic countries show that it is possible to substantially improve human welfare within capitalist mixed economies. Nationalization should be a pragmatic rather than an ideological issue. Again, we should experiment and pursue what works best – be it public or private.
DSW: More Third Way thinking. Hooray for experimentation! In addition to comparing different nations to each other, it is possible to compare a single nation at different points in its history. This is what Peter Turchin has done for American history in his book Ages of Discord, which shows how an era of prosperity during the mid-1800s was followed by extreme inequality and social unrest of the Gilded Age, which in turn was followed by the relative equality and prosperity of the New Deal, which in turn was followed by the extreme inequality and social unrest that we are experiencing today. Have similar fluctuations existed in other nations? Can within-nation differences over time be explained in the same way as between-nation differences?
GH: This idea of long-term political fluctuations was also explored by Albert Hirschman in his 1982 book entitled Shifting Involvements: Private Interest and Public Action. I do not believe in regular, inherent long waves, of a political or an economic (Kondratiev) variety. But there is something in the claim that, without due vigilance, periods of stable liberal-democratic government can give rise to complacency, allowing the rise of populist and illiberal forces, including nationalism and versions of socialism.
The current wave of populism in several countries was prompted by a combination of external and internal factors. The Great Financial Crash of 2008 undermined confidence in markets and governments. The subsequent uprisings in Arab countries led to major political destabilizations and waves of migration, which in turn were exploited by intolerant nationalist-populist politicians in the developed West. The evolution of capitalism is always a combination of internal factors with external pressures or shocks. There are new challenges for modern liberal democracies. The rapidly increasing complexity of modern technologies and institutions is a major challenge for any democratic system. It requires levels of public education and common understanding of the physical and social sciences that are sorely lacking, including in the US and UK.
This problem is illustrated by the need to deal with the climate emergency. There are too many unqualified people – even in governments – that deny the scientific arguments. Climate change denial is also popular among free-market libertarians with a distaste for the government interventions that are necessary (along with substantial private measures) to deal with the problem.
Alarmingly, we are entering a period when we can no longer take the institutions of liberal democracy for granted. We face a renewed struggle to defend their very existence, as well as the new challenges of climate change and techno-institutional complexity. I much appreciate the opportunity to talk to you about all these vital issues.
DSW: Likewise. The need to develop Third Way governance at the national and global scales was never more urgent.
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So would Darwin say that the confluence of hostile environmental and social factors set the stage for some lucky random social mutation whose usefulness would be so successful that it could quickly change human civilization in time to avoid extinction by its old and foolish ways? Well, yes. So what would Lamarck say? I think Lamarck is the wise man here because I think he would say that everybody realized – at first subcon-sciously and then in full consciousness – almost simultaneously that the old capitalist free-marketeer ways were killing us and began to change instinctively – to adapt – and there was no stopping it. What would all the economists say? My guess is that they would be so hubristic that they would at least imply that some important social change came from their steady hand and sensible guidance.
I do like articles like this, because they do result in people discussing and debating things. But, I have major problems with the arguments put forward.
First off, where is the role of imperialism in this analysis? Economic imperialism too. The Nordic countries benefited from Western imperialism, even if they themselves weren’t the main ones leading it. Poor countries tend to export raw materials, and things that have really bad terms of trade. In decades past, they pushed for things like producer cartels to try to address some of that, but ultimately for a country to be “developed”, they have to have a greater capacity to meet their own basic needs, and they have to get to the point where they are exporting products with good terms of trade. That means that they have to develop enterprises of their own, which by definition would displace exports from already developed countries. The coups, the dictatorship, the IMF, neoliberalism, austerity, the massive external debt in poor countries, that has all benefited Nordic social democracy, even if Nordic countries were leading imperialists. The French had a strong social democracy when they were attacking Vietnam with our support, among other places, which was a huge issue in France at the time among people on the left. The Communist Party in France at the time wasn’t always very good on issues like imperialism in poor countries. You could (always had) social democracy along with various forms of imperialism. In effect, you exploit poor countries and more equitably distribute the spoils. Is that setup democratic on the whole, or just somewhat democratic among those splitting up the spoils? So, where is the connection between imperialism and economic imperialism, and capitalism (social democratic or neoliberal, doesn’t matter)? There is a finite amount of resources in the world, resource consumption and pollution generation are highly inequitable, and the international economy is now utterly dominated by huge oligopolies, so how do you maintain consumption habits and make endogenous economic development a reality in developing countries without resulting in radical changes in developed countries? Conversely, how do you maintain the current system as is, and living standards in the West largely as is, without effectively doing away with democracy in poor countries?
On the issue of planning, the author doesn’t seem to draw a distinction between authoritarian planning and more democratic planning. They also discuss tacit knowledge, which was a point of focus for Hayek in the socialist calculation debate. Here is a huge problem though, one just briefly discussed in this conversation; the environmental crisis. Can you pass tacit knowledge through markets? Can you pass ecological information through markets? Is there an environmental crisis and is it not true that most environmental impacts are not priced? Therefore, the scale of what is not measured in markets is increasingly important. Are there not clear limits as far as monetizing these impacts? So, how do you solve this in an economy where planning plays a small role? What informational challenges confront individual consumers and produces in such a context? If the notion is that consumers and enterprises are given total freedom, how exactly do you deal with limits to growth? If a large enterprise pollutes a bunch and if we can only pollute so much, does that not impact smaller enterprises? So, how do you resolve that without planning? How could a decentralized economic system possibly determine sustainable limits to growth without planning and coordination? If this is to be solved at the individual level, how does a person know that their consumption is sustainable? What information would they need to actually determine such a thing, and how could an individual determine whether their consumption or production is sustainable if the term isn’t clearly defined? How many thousands of environmental impacts would have to be factored in at once? And how do you deal with a worldwide environmental crisis without planning, as developed countries will in fact have to work out who consumes less and why within their jurisdictions. Given how corrupt and inequitable societies are now, does that not require pretty radical changes itself? How could that possibly be realized in a decentralized market economy?
I would also question the notion that socialism has been “disastrous”. It certainly has had major problems, and I want to build a socialism that is democratic at its core in ways that existing socialism is and was not, and capitalism could never be. But, how has capitalism not been utterly disastrous as a system itself? I mean, it is the worldwide system now leading us to collapse, and it never resulted in a majority of the people in the world having high standards of living. Cuba has many problems, but it has a healthcare system, an educational system, housing and environmental record that stacks up really well with most other developed countries. It has a high HDI even though it is pretty poor. It certainly has human rights issues, but is it bad relative to the largest recipients of US aid since WWII? Colombia, for example, has received more aid from the US in the hemisphere. Is Cuba’s human rights record worst than Colombia, and has Cuba not improved in that regard while Colombia is still a human rights horror show? China has many issues with democracy and environmental destruction, but it went from being as poor as a country could possibly be (average life expectancy in 1949 was something like 37 years in China) to being one of the world’s leading superpowers. The USSR had massive issues, Stalin and the like. But, Eastern Europe was much poorer than Western Europe going back centuries, and the Soviets also turned into one of the world’s leading superpowers, and it cannot be said that the capitalist alternatives at the time in places like Asia were more democratic and had better human rights records. Indonesia after the coup? One party states like South Korea and Japan? I wouldn’t want to emulate the USSR, but lets be real about where it started, and what it dealt with. In fact, that imperialism that we discussed had a major impact on how authoritarian the socialist countries often were. You think Cuba wouldn’t have possibly been a bit more open if it wasn’t under constant terrorist attack since 1959? The Soviet Union? I mean, not only did it have a civil war, 18 countries invaded it, and the West went to economic war against the Soviets as well. The USSR had problems of its own, but the actions of the West contributed to the authoritarian nature of the system, just as events like 9/11 and Pearl Harbor did here as well. Cambodia would likely have never been led by Pol Pot if the US didn’t bomb Cambodia as it did directly leading into Pol Pot and if there wasn’t a coup against the government there. And go look into what Eva Golinger has written about what the CIA and the NED has done in Venezuela, and what role the economic war against Venezuela has had. Venezuela did have some issues with democracy, but it greatly expanded democracy in many ways too. Not just the massive growth of cooperatives (which the author supports it seems), but also in participatory planning and pushing for a constitution that allows for things like recalls and the capacity of the citizens to overturn what the state does. It was used against Chavez himself, and the coup plotters against him tore up the constitution and dissolved all levels of government (look up the Carmona decree). Think that all has contributed to problems in Venezuela? I won’t go on and discuss the decades long developments with the economy in Venezuela, but lets just say that capitalism hasn’t done the country well.
One last thing I want to address (I can’t get into the relationship between planning authorities and enterprises, the limits of democracy within capitalism when monopoly power is what it is and when most workplaces by definition are authoritarian, or the role of privatization and its record versus public companies in places like the UK. More widespread public ownership is popular in the UK for good reason) is money creation. Banks do not take into account non-market impacts, and if they did, they would have to radically change their behavior. How exactly could they make investments that they could assume are sustainable when they don’t have the knowledge of what other banks are doing? Banks have the power to create money, and the creation of money increases consumption and use of natural resources, and result in the generation of pollutants. So, if we acknowledge that we have to consume resources and produce pollutants at a level that is sustainable, and our consumption and pollution generation has to decline, how exactly do you do that with private banking, and private banking that isn’t itself pretty much planned and coordinated on a huge geographical scale? This isn’t a small problem, and I don’t see how it could possibly be dealt with within the current capitalist system.
To me, economic planning is a given. The question is how democratic and bottom up the planning will be. We should look carefully at the struggles of planning in the past, and then think about how the massive improvements in informational technology allow for a much better and more efficient planning mechanism now. The socialist calculation debate would have been radically different if we had the computer technology of today, and the socialist economies would have been much more efficient (even with all of their flaws), if they could use the technology of today. Authoritarianism degrades the information that is needed for effective economic planning. The planning should be democratic. But, we have to get real about what the environmental crisis means in regards to this discussion. The worker cooperatives I highly support could be a means of realizing both workplace democracy and would be key to make planning itself democratic. On that, I agree with the author.
Personally, I think that expecting 20th century social democracy to deal with the issues now confronting us is highly utopian.
great comment
Banks have the power to create money, Grant
That’s largely due to government privileges, both explicit* and implicit**, that could (and should) be eliminated.
Moreover, those privileges render bank liabilities toward the non-bank private sector largely a sham – thus obviating honest accounting as well as sound negative feedback on deposit/liability creation by the banks.
So little is to be expected in the way of genuine reform if we insist on bogus accounting and little to no negative feedback – regulation notwithstanding, if history is a guide.
*e.g. deposit guarantees.
**e.g. the non-bank private sector is forbidden accounts at the Central Bank where they might use fiat in account form and not merely as coins and paper Central Bank Notes.
Just wow. We don’t agree on everything but your comment is thorough, fair, and masterful. Every word bears close attention.
Also, continuing props to Upwithfiat for consistently bringing that very important, accessible message of the banking sector’s official sham.
Hear, hear!
Great thoughts here. Thank you for adding your serious thoughts on solutions and a path forward; all too rare in most comments I read. I’d love to hear more of your thoughts on the problems with social democracy, the benefits of worker cooperatives and how they could, possibly, become viable.
Authoritarianism has always been the problem. Any thoughts on how to break up the global crime syndicate?
One thing that does not seem to have been discussed is how every attempt at a socialist society has been viciously attacked by establishment powers. France was invaded by royalist countries after its revolution. Russia was invaded by the US and British forces after its revolution. Cuba has been blockaded ever since its revolution and the subject of various US invasion attempts. Allende was overthrown by the CIA. Venezuela has been under constant attack. Whatever its shortcomings, Yugoslavia and its industry and infrastructure were bombed to bits by B Clinton under ridiculous pretences. Gaddafi was murdered to the boasting delight of H Clinton.
Socialism may nor may not be the best solution, but capitalism is determined to ensure it never gets the opportunity to show the way forward to a better society.
Oh dear, not the Third Way again?
Look, there are basically two ways. They exploit us, or we expropriate them. The Third Way consists of them pretending to behave, in order that we don’t expropriate them. There’s no such thing as an unplanned economy: the only question is who does the planning. Since politics will not tolerate a vacuum, then if government withdraws from planning, non-governmental forces, generally financial, will take over.
The interview has several straw persons, but the most serious the idea that there are somehow only two alternatives: “central planning” or “the market.” Clearly this is wrong factually, since countries around the world, from France to Italy to Japan and Korea planned their economies to recover from war and destruction, and very effectively too. The great years of the last century, from about 1945 to 75 were essentially the years when economies were planned, in the sense that democratically elected governments building on a national consensus decided how they wanted their economies to develop. Since that time … well, you can fill in the rest. And where the state seized power, this was necessary to take this power away from the private sector, which wasn’t going to give it up just because it was asked nicely. In France in 1936, the new Popular Front government asked employers if they would be very kind and move over to producing arms for the war which was increasingly seen as inevitable. Not interested, said Renault and Citroen: not enough money in it. After WW2 many of these companies were nationalised, and formed part of the French economic renaissance.
In the end, there is no Third Way. It’s their way or our way. .
It’s like a horror movie.
The third way beast can only be killed by fire.
I would like to agree, but there’s a big open question about what “our way” will look like. This is not snark but a genuine question.
If we do anything real about inequality, this will certainly require some degree of expropriation, so we start by crossing all of “their” red lines. That’s fine, but where do we go from there?
In the past, there was a definite plan, which was titled “state ownership of the means of production” and I think that plan now definitely belongs to history, not to the present.
State ownership of certain utilities and natural monopolies, sure, of course. (Mass transit, power, health insurance, roads and bridges, telecommunications, etc, etc). But the bulk of the productive economy does not do so well under central planning.
So that leaves us with the problem of WHICH KINDS of private property are useful to a productive economy with shared ownership. It would be nice to say “many small worker cooperatives”, but I don’t know how to organize that.
We’ve seen examples of a government’s industrial policy effectively restarting production, e.g., postwar Germany and Japan. But I don’t know of any examples where this kind of industrial policy was able to drive shared ownership in the economy. Germans are perhaps overly proud of their “social market economy” which is, however, very unequal.
Given the political power to cross red lines on property redistribution, what sort of industrial policy would actually work?
It depends on what you mean by “do well”, and indeed was your objectives are. In the past, too many inefficient and old-fashioned industries were nationalised without their basic problems being addressed. The basic question is “what kind of economy do we want, and who should it serve?” From there you can make certain pragmatic decisions , like burning down much of the finance industry, whose role is almost entirely parasitic.
Sure, I would like to make most of what the FIRE sector does illegal.
But does that mean that government, or a state bank, will take equity shares in private sector businesses that need to buy equipment or facilities? What are the risks in that approach?
I have stopped here as I have scrolled through the comments. Grant wrote a longer than the interview article full of questions I believe I can answer. I believe others here can answer them.
First off it is the goals of the nation that matter. Of all organized human behaviors goals must be articulated and you find on webpages of bureaucracies “Mission Statements”. The successes of organized humanity shine from the light of the goals. During the Trump administration when Bad Faith appointments were the habit where the mission was not altered, it was just led according to ideal entirely opposite to the stated mission of those institutions.
Overall the entirety of the Trump GOP agenda is “Privatization” as much a failure as Socialism is when it takes all. There is simply little purpose to an organization without shared goals.
Families break apart when there is no shared property.
Now the Political Scientists and Political Engineers have to give us a World Organization that will reverse threats to the very Food Chain. We have the
organizations of the UN that all have missions and are why it constitutes our
greatest hopes. That appointments there are not as meritocratically decided as is the ideal is a profoundly damaging thing about that solution to what
gave us WWI and WWII.
Other issues are territory that the UN has too little of. My model is a nation of airports and you have to think it incredible that the UN itself does not already have at least offices at all sizable or and international airports.
Fraport is the victor in the EU ECB Econ war on Greece. To redeem and
make good that victory of that corporation it could be allied with the UN
though passport support and Earthshot Logistical support.
What war and can there be a substitute for war, is required?
What Economic System, Financial System is required?
A virtual reality love and war movie that is profitable is my answer
to the goal of a nation created, World Nation without the real war,
though Andre` Lewin Chairman of the French UN Association knew
the UN needed an army of its own.
A UN Army would have the goal of enforcing Weapons Laws of the
World. The UN has made illegal more Nuclear Weapons and it is
unfortunately clear that puts it on a path to war with a number of
national leaders and their national armies.
So here we are. Our duty is to defend the planet so that
there is always enough food for the people who live on it.
All that is practical Economically and Politically is to be
combined eclectically.
Academic weak tea. Pol Pot…Yugoslavia…please, gimme a break. I would have been happy to read a critique of the Mondragon Co-operative. A creature that I find very intriguing. Instead we get this nonsense. Why didn’t they discuss British Rail (is it still called that?). There is a Third Way debacle if I ever saw one. Well, this is why god made libraries. If a student knows he is being fed a steady diet of BS he can wander off in search of a more palatable meal.
Well, I can offer a bit on Mondragon. I have done and am doing a lot of work on worker cooperatives. Mondragon has to exist in this particular context, which does not encourage place based development that is internally equitable. So, it has over time started to change its operations a bit. It, like most cooperatives, has an internal pay differential and that differential has increased over time. It is still far more equitable internally than private companies of a similar size, but it isn’t as equitable as it used to be. Additionally, it operates in (I believe) 35 countries, and an increasing share of its workforce is non-owners. It has addressed this, but it has said that it has often struggled to bring workers in other countries into the cooperative as they often come from societies where such institutions are rare or don’t exist, so it isn’t easy. As a result, it has to an extent “degenerated”, although most workers are still also owners. Of course, the internal democracy changes the larger the companies in the corporate umbrella grow. Smaller cooperatives can have more of a direct democracy, but that changes to a representative democracy once the company gets that large (it employs about 70,000 workers now), and that results in a host of issues.
But, the International Cooperative Alliance (ICA) has stuck with and slightly expanded on the Rochdale Principles. One of the principles is cooperation among cooperatives. Mondragon has worked to support other cooperatives in other countries, and is even working with unions here in the US to support the growth of cooperatives. Its bank, Caja Laboral, has been central to this. But, if you think about cooperation among cooperatives, not much of an issue when cooperatives are a minor form. One cooperative is not likely to have to compete with another for consumers, given how relatively rare worker cooperatives still are. However, if worker cooperatives become a much more dominant institutional form, them cooperating with one another would create a different economic system entirely and could only be realized with a national system of economic planning. I think that worker cooperatives are far from this being a point of debate, but some that support cooperatives don’t want a radically different system, they just want a capitalism that is a bit more equitable, local and democratic. But, if worker cooperatives grow, there will be a discussion on how cooperatives fit into a wider context, and whether or not their growth is good in an of itself, or part of a larger project. But, if there is a critique of cooperatives that also seek a different system, I would say that the growth of worker cooperatives by itself doesn’t create a different economic system by itself, unless again the worker cooperatives are the dominant institutional form and if cooperation among cooperatives is still operative.
I, personally, like writers like this addressing things like Yugoslavia, not only because they did commit to an extent to self-management, but also how and why the system broke down (nationalism obviously, but that was encouraged in large part by “reforms” that institutions like the IMF forced on it beginning in the early 50’s. Cheryl Payer wrote a lot about this in her book The Debt Trap). It also helps to think about what differentiates social democracy from socialism. Social democracy used to be evolutionary socialism, transitioned to more Keynesian welfare state capitalism and then had its neoliberal turn. Personally, I think the internal contradictions in social democracy make a neoliberal turn all but certain over time if social democrats refuse to break with capitalism, which early social democrats did want to do.
David Sloan Wilson…are you reading? Interview David on a Third Way I could get into.
Thanks David.
I am not entirely sure this post deserves much effort toward analyzing or critiquing its content.
After reading this post I have no idea what the ‘Third Way’ governance that DSW refers to in his final statement might be. The best understanding I could attain from this post is a rough notion of what it is not. The trouble is that I see ‘Third Way’ governance as a dark blurry shape … it’s not Utopian or less than Utopian “socialism” and not “free-market” capitalism, or “liberterianism” or … [whatever happened to Neoliberalism]? I find it very difficult to analyze, critique, argue counter to, or agree with a dark blurry shape.
Moving to some of the more concrete ghosts in this post — there seems to be a running theme of centralized control and planning opposed to decentralized control and planning realized through the magical logics of the Market. We have the Soviet Union, Mao’s China, Castro’s Cuba, and North Korea and they all ‘failed’ ‘proving’ centralized planning [Utopian socialism] does not and cannot work, in spite of “noble intentions”. Then we shift to “governments that placed an emphasis on laissez-faire”. After a very brief nod to Keynes and Polanyi we shift to a brief mention of Adam Smith — a “nuanced thinker” — and on to “libertarian heroes, Friedrich Hayek and Milton Friedman”. [Are Hayek and Friedman libertarian heroes?] These libertarian heroes receive brief mentions and we are presented with Pinochet, Thatcher, and Reagan, slipping and sliding to Clinton and Gordon Brown as we dance to the music, until it stops in 2008.
But then we come to the Nordic Countries who — though not stated — seem to embody the wondrous successes potential in the ‘Third Way’ — except they might be special for various reasons [various odd reasons to me] so that their successes might not “scale” as intimated in the concluding sentence of this post … or they might: “We need to learn from the positive achievements of the Nordic countries and adapt their policies to different conditions elsewhere.”
Take a break — and let us salute “experimentation”, “relative equality” and mention “democracy” and “checks and balances” here and there … but let us not forget Peter Turchin before scattering a few non sequitors: “intolerant nationalist-populist politicians” and “complexity of modern technologies” opposed to “any democratic system” … but wait there is more! “the climate emergency” and “unqualified people – even in governments[!] – that deny the scientific arguments”. Alarm! alarm! — “we are entering a period when we can no longer take the institutions of liberal democracy for granted”.
And now the peculiar conclusion of this word-salad post: “The need to develop Third Way governance at the national and global scales was never more urgent.” [I have no idea what this Third Way governance might be after reading this post … which leaves me at a loss for exactly what kind of governance we need to develop and how we are supposed to actuate this development process.]
I don’t like the term “third way”, since Bill Clinton and Tony Blair used that term to describe their policies of privatization and military aggression. Furthermore, I believe it is associated with Fascism, though not sure about that.
Me neither, it suggests to me Neoliberalism masquerading as Social Democracy. Gadaffi also used the term.
But there is a “Vision Statement” mentioned and this seems to be it. In part:
Pity they didn’t call that the Fourth Way or something.
Thank you for linking to the Vision Statement so often referred to in the post, yet absent.
It drove me crazy trying to read this without it.
Yes, fascism was referred to as a “third way” back in the past. Trying to remember if that was somehwere in Europe.
You might be thinking of third position. Originally it referred to a bunch of loosely connected pre-Nazi groups but now it’s just used by sneaky fascists. Reading it for the first time scared me a little too lol
Here you go!
Hopefully this doesn’t get deleted by the auto-moderation filter.
https://der-dritte-weg.info/
Saw their political signs up around Buch (Berlin) the last election cycle.
Yes, their political signs looked very, very 1938.
“Third Way” reads like a marketing slogan. But Hodgson appears to be arguing in favor of social democracy — which is emphatically not what Clintonites meant when they mouthed the term.
Hodgson’s highly-selective historical case seems more like a bid to graft social democracy on to current elite discourse. As we saw with the large-donor victory over Sanders, Hodgson’s Third Way has a long way to go in this country.
I find the term “third way” as used in this post offensive. It too closely conjures the ideas of the “middle way” or the “middle path” which it in no way resembles.
it also reminds me of executives who, when presented with a dilemma, say “let’s do both!”
People are up in life and they are down.
Nothing utopian about just trying to have a system where peiole aren’t kicked when they are down.
You state a steel Truth most simply — a Truth too easily and too often lost from discussion.
a fat-finger/Skynet glitch.
“Just as capitalism has inherent tendencies, or to use Marx’s phrase, ‘laws of motion’, so too have bureaucracies and centralized regimes.” The problem, dear Brutus, is indeed that you have an idea of what socialism is, and while there are certainly any number of regimes and individuals who have employed the term in the way you employ it, that does not suffice to make it true. You want to set up a false dilemma in order to posit a Third Way; that is obvious in the the very first portion of your article. Given that, there’s no brooking deviations, they are simply “kidding yourselves.” Since I’m not prepared to write a book, I’ll mention some people who have, and have had something substantial to say in this matter.
I want to first mention Herbert Marcuse, who wrote a book specifically about the style of “socialism” in the former USSR (Soviet Marxism) and its various look-alikes, as well as books about the libertarian socialism that speaks to the historic quest of Marxists. I recommend An Essay on Liberation, one of his later works–and specifically, because in it he makes it explicit how crucial the utopian element of socialist vision and values is. You are, of course, using ‘utopian’ in the same way people typically use ‘anarchy’, as a receptacle where the dross should be deposited. Along with Marcuse, I am certainly not; it is precisely against existing choices, that social transformation is aimed. No “third way” that is not reached through political struggle by conscious masses of people, holds water for the prospect of anything qualitatively new and genuinely liberatory. That’s what makes socialism necessarily “utopian,” rather than a diagramatical synthesis of what we already have. Dialectical analysis is a lived analysis, not something on the chalkboard or a Power Point projection.
Beyond Capital, a book by Istvan Meszaros, is crucially informative and freeing, inasmuch as it points the Marxist goal not towards simply getting rid of capitalism, but the rule of capital…which can and historically has, taken various forms. Capital is alienated labor, and crystallizes in the form of the state–something Marx recognized, and not as a footnote to this vision. It isn’t an afterthought of his, that he saw the necessity of the state’s being made to wither away.
Finally, Douglas Kellner’s excellent review and analysis of Herbert Marcuse’s entire political life and development is contained in Herbert Marcuse and the Crisis of Marxism. It presents very scrupulous critical consideration of the various phases of development in Marcuse’s thinking and work, and it is worthy of careful consideration.
Upwithfiat stated above that “Banks have the power to create money. That’s largely due to government privileges, both explicit and implicit that could and should be eliminated.
It is not clear to me why, in light of Geoffrey Hodgson’s statement, that state and market are largely interdependent, why a bank capacity to create money should be eliminated in favor of only using fiat money created by a highly centralized and undemocratic central bank.
Isn’t it the case that a bank, in creating money simply reclassifies a liability from what should be an account payable to a customer deposit thus creating money out of nothing.
It is true that the borrower is often given the erroneous impression that a bank has transferred money from its capital, or reserves of other accounts, to the borrowers account (as indeed major theories of banking like financial intermediation and fractional reserve theories erroneously claim) but I believe in reality this is not the case. Neither the bank nor the customer deposited any money from outside the bank in order to make the deposit in the borrowers account–there was no depositing of any funds.
The banks liability is simply renamed a “bank deposit,” by the bank. Such a process seems to confirm that banks do not just grant credits, they create credit and simultaneously create money.
What if the average American citizen realized that banks create money, that they could actually go out and create, for example, not for profit local banks, that could benefit ordinary people and the particular local community.
I don’t understand why you would want to abolish local bank (non-profit in this case) credit creation?
I don’t understand why you would want to abolish local bank (non-profit in this case) credit creation
I don’t. Instead, banks should be 100% private with 100% voluntary depositors – free to create all the deposits/liabilities for fiat they dare (and ruthlessly foreclosed on when they can’t meet one).
Also, government privileged non-profit (or nationalized banks) don’t solve the ethical problem of the use, by the so-called “credit worthy”, of the PUBLIC’S credit but for private gain, which violates equal protection under the law.
And we can have low interest rates WITHOUT government privileges for the banks via:
1) An equal Citizen’s Dividend
and/or
2) Negative interest levied on large and non-citizen use of fiat, a public utility.
“I don’t. Instead, banks should be 100% private with 100% voluntary depositors – free to create all the deposits/liabilities for fiat they dare (and ruthlessly foreclosed on when they can’t meet one).”
This makes dealing with the environmental crisis impossible. We cannot properly deal with the environmental crisis if you give private banks this power. I think there are realistic problems with even regulating private banks, for many reasons too.
Ecological economists like Herman Daly have said that they are in favor of socializing money creation, but allowing banks themselves to be private. Fine, but I see no logical reason to give them absolute freedom to create money whenever and however they want and if we need to control how much total money is created, where the money goes, etc., I prefer public banks to regulating private banks personally. But, public banks have to be democratic and transparent. They could choose if they wanted to to undermine our capacity to deal with the environmental crisis. Why should be give them the power to do so if they wanted to? For what reason? If private banks exist, their capacity to create money at the very least have to be tightly controlled.
If private banks exist, their capacity to create money at the very least have to be tightly controlled. Grant
And that’s a purpose of making banks 100% private with 100% voluntary depositors – to make bank runs a genuine threat. Currently, banks are only capital constrained but genuine reform would make them reserve constrained too.
And 100% voluntary depositors implies an additional but risk-free payment system consisting of accounts for all citizens (at least) at the Central Bank or Treasury itself – so no more holding the economy hostage vIa a single payment system that must work through private banks or not at all.
Also, 100% private implies that banks and other large users of fiat, a public utility, should PAY for that privilege and that too would limit the ability of banks to create deposits by raising their costs.
Besides, outlawing private money creation might be impossible to enforce and why bother if private money creation would be (as it should be) financially dangerous only to the creators and their entirely voluntary depositors/creditors?
“It is not clear to me why, in light of Geoffrey Hodgson’s statement, that state and market are largely interdependent, why a bank capacity to create money should be eliminated in favor of only using fiat money created by a highly centralized and undemocratic central bank.”
Can the bank creating money lead to more resources being used? Does it increase effective demand? Does money creation and then giving the money to someone result in pollutants being created? Then the reason to control that is the limits to growth in regards to pollution generation and resources consumption. Banks creating too much of that can result in too many resources being consumed and too many pollutants being generated. You can like or not like that reality, or the fact that there is an environmental crisis, but what does it matter whether any of us like this reality? Crypto currencies are problematic for the same reasons, and I am sorry, but I have no time for ideological arguments about this when the situation is what it is. We should work to democratize the economy broadly for these reasons, among others.
I would also say that there is a danger in giving this power to an authoritarian state and for the central bank to be so undemocratic. Seems, given the objective reality forcing itself upon us all, that the key then is democratize these institutions and to place them under democratic control.
I didn’t even make it to the fifth paragraph before my bull-meter got pegged.
This is a classic strawman argument. I am no expert on socialism, but even a casual examination of the subject – from real socialists mind you, is hardly dogmatically binary. Indeed, once you get away from the neo-liberal bubble, there is a lot of discussion about “mixed economies” which strongly feature both socialistic and capitalistic elements. The philosophy is to allow each to play to its strengths. There are several modes of socialism, several modes of capitalism, and several modes that feature both in assorted combinations. A mixed economy presents an extremely diverse and complex landscape that can deal directly with “complex economies”.
More strawmaning. Heterodox have considered complexity. Which is why a mixed economy is surprisingly diverse and able to handle just about any structural sector that you could imagine. A mixed economy is also dynamic, able to respond to changes in economic conditions – a pandemic for example. Or even is one model should fail or operate with undesirable outcomes (such as “market distortions”) there is the option of modifying the system to compensate. Or sectors could operate under multiple systems based off of regional preferences or conditions. Something that Swan doesn’t mention, at least not in the selection offered. All though this is one of the common criticisms of “third way” as at the end of the day, third way approaches to economic structure is just as static and inflexible as the alternatives it attempts to criticize.
As if capitalism (aka corporatism) or third way alternatives (basically rule by “qualified professionals”) are not just as “biased towards centralized control” as socialism.
In the mixed economy model, you have varying degrees of central/decentralized management for both socialistic and capitalistic models. Indeed, it argues that these ideas are nested. If you want an openly democratized system, where any one can easily start up a new enterprise such as you-tube content creators for example, it makes sense that the involved infrastructure be centrally managed by neutral parties. Instead, this space is privately owned and hold near absolute power over small content providers, robbing them of revenue, exposing them to phony DMCA take down notices that can arbitrarily end a sight, or tinkering with search algorithms that starve them of an audience.
A socialized infrastructure is conducive and promotes small scale capitalism. An argument that makes the typical neoliberal head explode.
It also implies that “central management” is inherently a bad thing. In certain cases, you will want a democratized system (such as you-tube content creators), and in other cases you will want strong central management (such as with a pandemic response and other crises management.)
Yes, socialism does tend towards central management in some form. That is, it’s strength, the central management of scares or shared resources. But this central management can be intelligent and proactive (which markets cannot be), proactively anticipating problems rather than passively responding to them. Central management can also be democratically run, accountable to the workers, members, or general public as needs dictate.
In its totality, Swan is arguing a figment of his imagination. There is really nothing new here and this interview could just have easily taken place in the 80s a half dozen books ago.
I infer from your post is that if you start questioning the current dominant ideology of this world, neoliberalism, you find most people scratching their heads about some middle ground between communism/socialism and fascism/capitalism. That is a heartening thought. I personally think that, given how human beings are, there is no “right” answer: No matter what is settled on, there will always be a debate. Yet, that does not mean that past social experiments don’t provide us with data by which to make our world a better place. That is, is we can agree about what is a better place. For example, this article invoked the GDP as that measure – sort of. Yet I was watching a recent Joe Rogan interview of David Chappelle. Chappelle mentioned that Bhutan tries to use GDH (H for happiness) instead of GDP as that measure. I’ve heard of that before, but only from Buddhists.
Anyways, if you could provide references to those so-called socialists thinking about a middle way, I’d appreciate it. I know of Yanis and a few others, but that’s it.
Spot on.
Oh my god. Hodgson’s role is to act as a censor to destroy the whole idea of the institutionalist school, of which he was the specialist, trying to eradicate, burn and destroy its basic aim: to isolate economic rent as an unnecessary cost of production, to be explained by historical means (military conquest, illicit crime, insider dealing, grabitization). He has written out of history Simon Patten and the other institutionalizes who focused on reform, to present a vulgar, offensive travesty of economic thought.
I’m told he begun as a progressive. But opportunism won out.
https://twitter.com/thinking_panda/status/1305786183977299968
I don’t think we can get there from here…We have to be somewhere else: are you ready?
You need to have some idea how the current system works to make changes to it that will be effective.
How bad is it?
No one knows what real wealth creation is.
Where does real wealth creation take place in the economy?
Economists do identify where real wealth creation in the economy occurs, but this is a most inconvenient truth as it reveals many at the top don’t actually create any wealth.
This is the problem.
Much of their money comes from wealth extraction rather than wealth creation, and they need to get everyone thoroughly confused so we don’t realise what they are really up to.
The Classical Economists had a quick look around and noticed the aristocracy were maintained in luxury and leisure by the hard work of everyone else.
They haven’t done anything economically productive for centuries, they couldn’t miss it.
The Classical economist, Adam Smith:
“The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money.”
There was no benefits system in those days, and if those at the bottom didn’t work they died.
They had to earn money to live.
Ricardo was an expert on the small state, unregulated capitalism he observed in the world around him. He was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
“The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist.
They soon identified the constructive “earned” income and the parasitic “unearned” income.
This disappeared in neoclassical economics.
GDP was invented after they used neoclassical economics last time.
In the 1920s, the economy roared, the stock market soared and nearly everyone had been making lots of money.
In the 1930s, they were wondering what the hell had just happened as everything had appeared to be going so well in the 1920s and then it all just fell apart.
They needed a better measure to see what was really going on in the economy and came up with GDP.
In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.
The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP. The real wealth creation in the economy is measured by GDP.
Real wealth creation involves real work producing new goods and services in the economy.
So all that transferring existing financial assets around doesn’t create wealth?
No it doesn’t, and now you are ready to start thinking about what is really going on there.
Don’t get confused between making money and creating wealth.
When you equate making money with creating wealth, people try and make money in the easiest way possible, which doesn’t actually create any wealth.
In 1984, for the first time in American history, “unearned” income exceeded “earned” income.
The American have lost sight of what real wealth creation is, and are just focussed on making money.
You might as well do that in the easiest way possible.
It looks like a parasitic rentier capitalism because that is what it is.
Bankers make the most money when they are driving your economy into a financial crisis.
They will load your economy up with their debt products until you get a financial crisis.
On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was in the 1920s.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
At 18 mins.
The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008.
As you head towards the financial crisis, the economy booms due to the money creation of bank loans.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The financial crisis appears to come out of a clear blue sky when you use an economics that doesn’t consider debt, like neoclassical economics.
The unforeseen problem with economic liberalism.
Making money doing nothing.
What are the options?
Well, there are quite a few options available; we’ve got rent, dividends and interest and there is the globalisation favourite, capital gains on property.
With a BTL portfolio, I can get the capital gains on a number of properties and extract the hard earned income of generation rent at the same time.
That sounds good.
What is there not to like?
Transferring existing financial assets around looks like a cushy number.
I’ll make money from capital gains and that doesn’t involve any real work.
Excellent.
This is the best thing about capitalism.
You can make money without doing any work.
I hate work, I love capitalism.
It’s great, isn’t it?
That’s why I like economic liberalism.
You’ve just got to sniff out the easy money.
All that hard work involved in setting up a company yourself, and building it up.
Why bother?
Asset strip firms other people have built up, that’s easy money.
How on earth are we going to get anyone to do anything useful and create some real wealth?
I had hoped to find some actual discussion of how national economies are designed and built. At least David points out that the key examples of Japan and South Korea are ignored here.
But even more important to be mentioned is that the model for these countries was the industrialization of USA under Hamiltonian policies of encouraging manufacturing and industrial diversity. Michael Hudson interjects an all too brief — because it is crucial — comment that this is basically an attack on institutional economics, which is based on Hamilton’s ideas.
The idea of central planning presented in the OP is quite deformed. A great example is the Green New Deal, which is based on heavy government intervention into markets to steer national economies towards renewable energies and an end to dependence on fossil fuels. Is the GND really communism or socialism? The way the conservatives and libertarian ideologues claim it is? Of course not. But there is a large, important element of central planning involved, since it is government dictating the direction of development for the national economy. None of the details really need to be planned — let market forces and private economic actors act within the framework of the goal set by government of a Green New Deal. I do not think the OP understands this, or at least, does not discuss it competently.
OP?
I think it would help the conversation by delineating concrete steps that can be done NOW and see how much agreement we can get. If my hand on the pulse of the USA is correct, popular moves would be M4A, cutting the military surveillance budget, and banning stock buybacks and employer pay linked to stock price?
There’s a good deal of sense in this interview but also a sadly tendentious dismissal of socialism. In evidence that “most of the socialist movement has been biased towards centralized control,” Hodgson’s go-tos are Sidney and Beatrice Webb and G. D. H. Cole — died 1943, 1947, 1959, respectively. Hodgon’s “most” socialism skips the last 60 to 80 years, yet he calls today’s socialists naïve for not accepting his definition of who we are. On his account, we simply fail to comprehend that socialism equals central planning equals apocalyptic Soviet oppression equals “actually existing socialism,” kaboom. If we say otherwise we’re denying the gulag to peddle unicorn farts, which always smell great because they’re not real.
Nothing can stop someone from defining “actually existing socialism” as Stalinism if they like. The second S in USSR, the Z in Nazi! If some mild-mannered, actually-existing Bernie supporters argue that central planning of wheat production and shoelace distribution isn’t really our thing, that there are socialisms plural but no such thing as “socialism” as a singular substance revealed once and for all in Stalinism or anywhere else, and that democracy and humanism are absolutely essential to _our_ socialism, then we’re weaseling or deluded. We don’t perceive that no matter what we think we think, we are actually tyrannical central planners because that is the essence of socialism because it IS dammit (got old quotes, buy my book), therefore socialism leads to the gulag.
Hodgson’s clincher is that today’s democratic socialists can point to no actually existing society that is entirely what we advocate for. The Nordic countries have got some stuff right, but that’s not (apparently) because generations of self-identified socialists have worked to shape them: they exemplify a superior Third Way, a willingness to _experiment_! What socialist ever thought of trial and error, eh? Or admitted a role for context, pragmatism, adaptation, uncertainty, learning, gray zones, reality of any sort? Socialists just walk around beating each other with rolled-up blueprints for Utopia (got old quotes, buy my book)!
If any socialism that doesn’t dogmatically demand the abolition of all markets isn’t really socialism but a Hodgsonian “third way,” then maybe most socialism of the last half-century-plus has really been not-socialism, or maybe Hodgson’s experimentalism is really a socialism itself, just an unusually markety one, or — whatever. To replace logomachy with substance, a good first step would be to drop the Platonic essences and damning historical simplifications. It’s a poor way to argue with one’s allies.