The New School for Social Research at 100: A view from the Econ. Dept.

From a late 1990s catalogue; Lance Taylor (center), and also in no particular order

and from what I can remember (Ellen Houston, Adalmir Marquetti, myself (with goaty

on the left side), Margaret Duncan, Josh Bivens and Carlos Bastos (Orozco Room)

The New School for Social Research was founded 100 years ago by a group of academics dissatisfied with the direction of American higher education. Economics was central to the early history of the New School, and my brief, very incomplete, and certainly idiosyncratic historical account emphasizes the Economics Department of what used to be called the Graduate Faculty.

Thorstein Veblen, one of the founders, had written his famous Higher Learning in America, which in a sense is the original critique of the corporate university. The idea was to put learning at the center, and avoid the conventional trappings of universities, with no degrees provided to students. The foundations of the critical perspectives provided at the New School came from institutionalists (like Veblen), pragmatists, represented by another prominent founder, namely John Dewey, and revisionism in history, with Charles Beard as its main voice at the new institution. Many came from Columbia University and were dissatisfied with both institutions of higher education and the direction the country had taken, in particular with World War I. These were mostly anti-war, progressive social scientists.

Perhaps the key person at the inception of the New School was Alvin Johnson, a somewhat difficult to classify economist (Gonçalo Fonseca at the HET website suggests that he might be seen as Austrian), that has been almost completely forgotten. Johnson was the editor of the massive Encyclopaedia of the Social Sciences, later substituted by the International Encyclopedia of the Social Sciences (last edition under Sandy Darity, and I have two entries on Export Promotion and James Mill), which put him in contact with several economists around the world, many in Germany.

A group of scholars that he met as the editor of the encyclopedia was the basis for the so-called University in Exile, which eventually was the basis for the Graduate Faculty, the division that now still is called the New School for Social Research (while the whole is just The New School, if I do understand the naming changes at my alma mater). The most important and cohesive group of economists that arrived at the New School in 1933, and the following years, escaping persecution in Nazi Germany, were the ones related to the Kiel School, including Gerhard Colm (on Colm I co-authored this paper with Luca Fiorito), Adolph Lowe, Jacob Marschak, and Hans Neisser. In that group, Lowe, the mentor to Robert Heilbroner, was to be the more consequential for the New School.

The New School was not orthodox in its economic teaching, but the 1930s were a period of flux in the profession. The Keynesian Revolution was in course, and Keynes was acquainted with Johnson and the New School, as it can be seen in the letter he gave to H. G. Bab (see below; click to amplify). In that sense, while it is true that the place was somewhat unorthodox, given its origins and the historical period in question, that should not be exaggerated. Note that Marschak went on to be the head of the Cowles Commission, and a leading mainstream economist. While at the New School he supervised Franco Modigliani's doctoral thesis, which was the basis for his famous neoclassical synthesis paper of an ISLM model with rigid wages and for his Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The New School, more enjoyable and compatible people than at Columbia, for sure (click to enlarge)

I say this because there is a tendency to think of the New School as being always heterodox, and taking that term to have more or less a contemporary meaning (for what I mean about that go here; for a great and more in depth discussion see this post by Ingrid Kvangraven and Carolina Alves). Many others taught at the New School in this period, perhaps, worth mentioning is the case of Abba Lerner, the main author of the functional finance school (something that is at the core of Modern Money Theory, but is more restrictive and specific than MMT).

The Kiel School was what one could term eclectic. They certainly had roots on elements of the German Historical School, and readings of marginalist and non-marginalist authors, including Marxists. Gonçalo puts Tugan-Baranovsky as one of the influences on the Kiel School. Tugan, a "semi-critic of Marx" according to Schumpeter, argued that a disproportion between the investment and consumption goods sectors would lead to recurrent industrial crises, and that notion of structural imbalances was central for Kiel authors. Leontief was also connected to the Kiel School.

While many in the Kiel School were open to and used marginalist concepts, as in the case of institutionalists, not all were neoclassical, and Lowe's views arguably were the most clearly connected to the works of the old classical political economists. Ed Nell, in the appendix to Lowe's book The Path of Economic Growth compares it with Leontief, Von Neumann, and Sraffa, as being classically inspired. One can think of Ed's Transformational Growth research program as building on that tradition.

But it would be a stretch to suggest that Bob Heilbroner, Lowe's main disciple at the New School, and the next key person in the history of the Economics Department at the Graduate Faculty, was a follower of classical political economy. A cursory reading of his classic, The Worldly Philosophers, shows that his reading of Smith is perfectly compatible modern mainstream readings, which imply that Smith was a precursor of supply and demand theories. The chapter on Smith discusses the law of markets, but the labor theory of value only makes an appearance in the chapter on Marx, and to suggest that it was a deviation from Smith and Ricardo. The degree to which Heilbroner conflates classical and marginalist or neoclassical theory is clear in that he argues that the Walrasian circular-flow in Schumpeter's theory resembles Ricardo's stationary state. And in the discussion of Schumpeter's notion of profit he suggests, regarding the labor theory of value, that "everyone knew to be wrong and therefore did not have to be reckoned with."*

Further, his views on economic growth, as evidenced in his book on the economics history of the Unites States, were essentially that growth was supply-side constrained and dependent on technological innovation, in ways that seem to be closer to his Harvard undergraduate teacher, Joseph Schumpeter, than classical political economy authors (Smith had, arguably, a demand driven view of growth, at least for some, while Ricardo most certainly didn't, and Marx is open to many different views; I'll keep that to another post). I emphasize this to show that even if he was unorthodox in many ways, Bob was not necessarily what we would term heterodox in the modern sense of the word (even if taken loosely as not being neoclassical).** In my view, no clear heterodox bias existed up to the 1960s, in a department that had basically been under the shadow of three economists, Johnson, Lowe and Heilbroner. Note that this somewhat eclectic persistence of different approaches was more or less common in many departments at that time.

But the Johnson-Lowe-Heilbroner nexus provided the basis for the changes that shaped the department with the arrival of Ed Nell in the late 1960s. Ed had worked with Hicks at Oxford, and he was from early on critical of methodological individualism, something that is clear from his critique of the concept of the rational economic man. More importantly he was concerned with growth, and that led to a discussion of the theories of value and distribution (perhaps influenced by Hicks' Capital and Growth, which remains an important book), and was influenced by Sraffa's revival of classical political economy. It was after Ed arrived that a series of new hires, among them Stephen Hymer, Anwar Shaikh, and David Gordon, changed the department. Note that the late 1960s and early 1970s too is the period in which the economics profession segregates the heterodox groups, makes it harder for radicals to get tenure in conventional and prestigious departments (e.g. Sam Bowles at Harvard), and publishing requires the foundation of new journals (e.g Journal of Post Keynesian Economics, and the Cambridge Journal of Economics).

In my view, it is no coincidence that this is also when the change in the notion of equilibrium, as discussed by Garegnani, takes place (some discussion of that here). The point is that the capital debates had shown the limits of marginalist (neoclassical) economics, and the profession embraced what I have referred to as vulgar economics after that. The hiring of heterodox economists, critical of the mainstream in this period, and the sociology of academia, locked in heterodox hegemony at the Econ. Dept. of the Graduate Faculty.

Many other heterodox economists taught at the New School's Econ. Dept. from that point onwards. I might note Paul Sweezy, which if I'm not wrong was instrumental in making Bob Pollin choose the New School for his PhD, was among the teachers in the 1970s. And also many Sraffians like Piero Garegnani, John Eatwell, taught on a recurring basis, while many were visitors for shorter periods. Again, somewhat idiosyncratically, in my view it is the arrival of Lance Taylor in 1993 and a few years later of Duncan Foley that consolidated the persistence of the heterodoxy, and the type of heterodox department (with a mix of structural Keynesianism and Marxism), that the New School has today.

Perhaps, it is important to emphasize how limited this story is. There is a missing story about the role of David Gordon, who was also a key player in the department for many decades, and of Anwar Shaikh, that I always saw as somewhat of an influential outsider (maybe I'm wrong), even by the New School standards. And also the many other wonderful and creative heterodox economists that passed through the New School over the years. There is a question about the gender imbalances at the New School, and within heterodoxy itself, that I do not address. I'll explicitly avoid saying any additional names, since in this way I cannot be accused of forgetting someone (I'm leaving out a ton, including the many alumni that went on to remarkable careers). Hopefully this provides a window on how the New School became heterodox and why it remains so.

* It should be noted that Bob's book was published in 1953, a few years before the labor theory of value was rehabilitated by Sraffa's Production of Commodities.

** On a personal note, I remember talking to Bob on an interval of a conference organized by Ed Nell on functional finance, in 1997, I think, in which he argued that the Maastricht limits (3 per cent for deficits, and 60 per cent for debt) were reasonable measures to constrain the size of government. He was a liberal in an older sense of the word, perhaps.

On being a 'real Keynesian': Paul Sweezy's take

More on the issue of 'real Keynesians,' which I discussed here before. Paul Sweezy, a Marxist economist that was, however, very positive on Keynesian ideas, said this on Keynesianism:

This is from Colander and Landreth interviews in The Coming of Keynesianism to America. He was, a close friend and student of Schumpeter, and before writing his classic The Theory of Capitalist Development, still one the best introductions to Marx's economic thinking, he penned with several other Keynesian economists, including Lorie Tarshies, a little pamphlet called An Economic Program for American Democracy, in which several Harvard economists promoted Keynesian ideas.

PS: The point of my previous post was that under certain circumstances, and referring to policy issues, the left-wing Keynesian and the business-minded Keynesian are allies, by the way.

Book Review of Foster & McChesney's "The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China"

The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China. John Bellamy Foster & Robert W. McChesney Hardcover: 224 pages. Publisher: Monthly Review Press (September 1, 2012). Language: English. ISBN-13: 978-1583673133

By David Fields

Over-accumulation stemming from the so-called golden age of global capitalism has ensued an era of underconsumption as exemplified by low profit rates and chronic excess capacity. As such, what has taken place is an historical transformation towards the process of financialization. With an inability to absorb effectively economic surpluses, concerning the promotion of rising wages along with productivity, NFCs, or non-financial corporations, are coerced to paying a larger share of their internal funds, specifically via debt leveraging (including consumers), to financial institutions. These financial institutions, which are increasingly concentrated in the hands of fewer and fewer people, have become some of the most powerful actors. Increasing concentration of control within the financial sector lends credence to Marx's (1894: 544-45) argument that what Foster & McChesney call the age of monopoly finance capital is one in which

[t]he credit system, which as its focus in the so-called national banks and the big money lenders and usurers surrounding them, constitutes enormous centralization, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner-and this gang knows nothing about production and has nothing to do with it.

Read rest here.

Monthly Review: The Baran–Sweezy Letters Project

By Nicholas Baran

The correspondence of Paul Baran and Paul Sweezy in the 1950s and early ‘60s is one of the great, unknown legacies of Marxian political economy in the United States. Over the past year and a half, I have been transcribing all of these letters with the goal of having the collection published by Monthly Review press, both as a hardcopy book of selected letters, as well as an unabridged e-book. In commemoration of my father, Paul A. Baran, on the fiftieth anniversary of his death on March 26, 1964, we decided to refer publicly for the first time to the Baran–Sweezy Letters Project and to publish a few important and representative letters.

Read rest here.

More on The Sociology of Development - Reposted by Hampton Institute

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory see here. For the original post see here.

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory

The sociology of development as a field of study, a structure of knowledge, providing an interpretive grid through which to render impoverished regions of the world intelligible has its roots after the completion of Second World War with the crystallization of ‘Modernization theory', which constituted an ideation that societies are understood to move from social positions of tradition to modernity polar ends of an evolutionary continuum. At some point, incremental changes give way to a qualitative jump into modernity, marked by the essence of industrialism. In this sense, the Third world is perceived to be below the threshold of modernity, with a preponderance of traditional-like features such as an extended kinship social structure and, due to the lack of progress towards political differentiations, similar to that of Western forms of democratization, strict hierarchical sources of authority, altogether negating the possibilities to move beyond disintegrated autarkic primary economic activities (Parsons, 1964).

The development of a high extent of differentiation: the development of free resources which are not committed to any fixed, ascriptive groups; the development of wide non-traditional, “national,” or even super-national group identifications; and the concomitant development, in all major institutional spheres, of specialized roles and of special wider regulative or allocative mechanisms and organization, such as market mechanisms in economic life, voting and party activities in politics, and diverse bureaucratic organizations and mechanisms in most institutional spheres (Eisenstadt (1973: 23).

According to Rostow (1960), all societies can be placed along a linear continuum from undeveloped to developed along a ‘stages of economic growth’ path, derived from an extensive study of Western economic development. In ‘traditional society’, the first stage, it is deemed that economic output is limited because of inaccessibility to innovative technology. At the second stage, ‘the preconditions for take-off, modern science, attributed to “Western Europe of the late seventeenth and early eighteenth centuries” (Rostow, 1960, p. 6) ensues new innovations in production in agriculture and industry, fostering widespread education, entrepreneurship, and institutions capable of mobilizing industrial capital; capitalistic investments increase, especially in transport, communication and raw materials. Nevertheless, despite the development of some modern manufacturing, traditional social structures and production techniques remain:

In many cases, for example, the traditional society persisted side by side with modern economic activities, conducted for limited economic purposes by a colonial or quasi-colonial power (Rostow, 1960, p.7)

Rostow’s third stage is ‘the Take-off’, in which traditional barriers to economic growth, like the effect of a dual economy, are overcome. At this point, capital investment increases rapidly and new industries expand exponentially, as does an ‘entrepreneurial class’—economic growth becomes a normal condition” (Rostow, 1960, p. 36). At the fourth stage, ‘the Drive to Maturity’, technology becomes more complex and what produced is now less a matter of economic necessity, and more a question of consumer choice. This leads to the final fifth stage of high consumption, in which economic sectors specialize in the manufacturing of highly sought after consumer durables and basic life needs are mutually satisfied. In a play on Marx, Rostow’s analysis suggests that the West, which “is more developed industrially only shows, to the less developed, the image of its own future’ (Marx, 1954, p. 19). The assumption is that capitalism is a historically progressive system, which is transmitted from the privileged economically advanced countries to the rest of the world by a continual process of destruction and replacement of pre-capitalist social structures (Palma, 1978).

The problem with modernization theory is that it is quite ahistorical, with respect to the global capitalist exploitation. 'Modernization’ theory can, and has been, be interpreted as a ‘blame the victim’ approach to problems affecting the ‘Third World’. Rostow ignores the external influences like colonialism that contributed to social in the Third World. Rostow’s, and for most of ‘modernization’ theory, the unit of analysis is the nation-state of the ‘Third World’, emphasizing internal dynamics, sectors and sub-sectors, combined with the causal role of technology. As such, conclusions drawn from this approach are that all nations, regardless of the history of imperialism, colonialism, etc., should be able to modernize with emulation of more developed economies and their diffusing of highly advanced technology.

Paul Baran and Paul Sweezy, in Monopoly Capital (1960), building on the path-breaking work of Michel Kalecki and Joseph Steindl, assess the degree to which monopoly, as measured by the market concentration ratio of large capitalist firms (corporations) in economically advanced countries, ensues an inverse of Marx’s famous hypothesis that the ‘laws of motion’ of capitalist development in produces a ‘tendency for the surplus to fall. Rather, the economic surplus, defined as the gap, at any given level of economic activity—effective demand in Keynesian terminology—, between what is produced and the socially necessary costs of producing it, under monopoly capitalism has a tendency to rise (Baran & Sweezy,1966, pp. 9, 52-57).

Since aggregate levels of effective demand for total output determine the level of economic activity, crises of capital accumulation are inevitable if the monopoly sector cannot sustain its power via sufficient investment opportunities to absorb its accumulating share of the total surplus produced. Rather than let this insufficiency put downward pressures on potential profits as a whole, various stabilizing factors are set in motion, which include classical Keynesian government deficit spending, research & development (although risky without reliable forecasts potential spillover effects), waste (as evidenced by a sales effort, i.e. consumerism), or imperialism—the last of which provides the foundations for the dependency theoretical approach to economic development.

In this sense, for an understanding of the fundamental division between economically advanced countries and impoverished ones, it is requisite to place attention to the extent to which foreign investment acts as an outlet for investment-seeking surplus generation. Unlike Lenin’s theory of imperialism, foreign investment is a method of extracting wealth, not a channel through which surplus is directed, ensuing underdevelopment (Baran & Sweezy, pp. 104-105). Underdevelopment is a thus process by which monopoly capital in economically advanced nations exploit economically weaker countries by exporting capital to the extent that profits produced (from the production of cheaper consumer goods or raw materials via lower wages in these countries, for example) are repatriated. It is the process by which the expropriation of “foreign sources of supply and foreign markets, ena[ble] [the agents of] monopoly capital to buy and sell on specially privileged terms” (Baran & Sweezy 1966, p. 201), ensuring, caeteris paribus, their positions of power in the world are sustained. The result is that economically weaker countries suffer the retardation of the requisite forces to spawn autonomous and dynamic process of self-governance of the conditions that constitute independent social/political/economic coordination, planning and control.

The argument is that (Baran & Sweezy, pp. 9,178-179) monopoly capitalism is tantamount to the degree to which large capitalist firms in economically advanced countries have as their counterpart the “exploitation of much of the rest of the world” and, as a result, constitute international relations as a “hierarchical system with one or more leading metropolises, completely dependent colonies [even if not name, certainly in practice] at the bottom, and many degrees of superordinate and subordination in between […] [t]hese features are of crucial importance to the functioning of both the system as a whole and its individual components […] (Baran & Sweezy, 1966, pp. 178-179). As such, “we cannot hope to formulate adequate development theory and policy for the majority of the world’s population who suffer from [impoverishment] without first learning how their past economic and social history gave rise to their present underdevelopment” (Frank, [1966] 1969). Underdevelopment is neither an original nor traditional social position. Hence, it cannot be assumed that the contemporary position of the Third World can be understood as solely a reflections of its internal historically specific social, political, economic, and organizational characteristics. The process by which monopoly capital in economic advanced countries extract surplus from less-developed countries through capital exports limits the latter’s ability to achieve the status of the former. Thus, 'modernization theory' is utterly unsatisfactory, for such an approach

[…] in all its variations, ignores the historical and structural reality of the underdeveloped countries. This reality is the product of the very same historical process and systemic structure as is the development of the now developed countries’ (Frank 1969, p. 47).

To suggest that social, political, and economic advancement of the underdeveloped world can be generated by the diffusion of what is deemed modernizing institutions, values, etc. is fundamentally erroneous. If development fails to occur, it is not because within the Third World there are mere obstacles to diffusion because of innate poverty arising from some form Gerschenkronian ‘backwardness’, but due to the net outflow of vital resources, whether natural, monetary, human, technological etc. The implication is that underdevelopment is not because of the “the survival of archaic institutions”, or some inability to contract some ‘modern man’ (Inkles, 1969) syndrome; on the contrary, it is generated by the same capitalist development that led to the domination by economic advanced countries, that is, “the development of capitalism itself” (Frank, [1966] 1969). Capitalism, hence, is an operation that cements a peripheral latifundium system, via the constant forces of ‘primitive-accumulation', what Myrdal (1957) defined as international ‘backwash’ effects, that reproduces a cleavage between ‘town and country’, centre and periphery, on a tremendously enlarged basis (cf. Bukharin & Lenin, 1929).

Viewed from this standpoint, dependency theory is a manifestation of what David Harvey (1978, 2007) defines as ‘accumulation by dispossession’ by virtue of which dialectical forces of motion and contradiction generate vast disparities of wealth and power on a worldwide scale. The world economy is reproduced as a world-system (Wallerstein, 1979) of ‘unequal exchange’ (Emmanuel, 1972; Amin 1974, 1976), in which ‘underdevelopment’ ensues peripheral internal long-run stagnation (Bornschier & Chase-Dunn, 1985, pp. 39-40). The terms of trade for the periphery fall precipitously – this is the Prebisch-Singer hypothesis (Prebisch 1950). As Samir Amin (1976, p. 292) notes, “whereas at the center growth means development, making the economy more integral, in the periphery growth does not mean more development, for it dis-articulates the economy. Since the imbalance of international trade defines the mechanisms by which capital is drained from former colonized countries, there is no way for peripheral countries in the world economy to ‘catch up’ in Rostowian fashion (p. 383).

Nevertheless, the social facts that constitute the particular social conditions for the constant negation of a ‘just price’ in international trade ‘admits of varying interpretation’ (Frank, 1977). Case in point is the extent to which the periphery is in fact ‘peripheralized’. To suggest that the capitalist world economy simply, by definition, produces a centre-periphery polarity (Frank, 1967; Wallerstein, 1974), is to pay insufficient attention to understanding the extent to which economic development in the periphery is a convoluted association of varying social processes, rather than the mere result of a state’s homogenized world-systemic position (Gellert, 2010).

According to Cardoso and Faletto ([1967] 1970), for instance, development in the periphery, while controlling for socioeconomic income differentials, is likely if foreign capital penetration creates spillover effects. That is, partial economic growth is viable through what Peter Evans (1995) describes as the practice of an ‘embedded autonomy’-an apparent solidified social network between the state and civil society (which consists of economic elites from the centre) that creates the capacity for the state, as such, to engage in domestic Keynesian aggregate demand management. Whether this is manifested is the extent to which a peripheral country does not suffer the inability to borrow in its own currency, in which a country, most likely a developing one, supplements its domestic unit account of fiduciary reserve assets with a foreign currency. This is the exemplification of a country foregoing its national ‘monetary sovereignty’ (Mundell, 1961).

The essence of national 'monetary sovereignty' is the cartelist (or chartelist) (Goodhart, 1998) conception that emphasizes state power to establish a particular unit of account, a national currency, which allows economic calculations to take place (Ingham, 2004). In this sense, money is a means for accounting for and settling of financial debts, the most important of which are tax debts, which, in turn, regulate the level of aggregate demand, and thus determination of national income through the use of fiscal policy; it represents a [store of financial value] [...] [of which] general purchasing power is held [...] (Keynes, 1930, p. 3).

In the United States, for example, and in contrast to James O’Connor ([1973] 2002) and Erik Olin Wright’s (1979) fiscal sociological model for analyzing the intricacies of public finance, which narrowly centers on a hypothetical natural limit to fiscal policy (Wright 1979, p.157), the federal government, through open-market operations, sells government bonds, Treasury securities, which are either bought or foregone by the Federal Reserve (Fed). If the Fed commits to a policy of purchasing Treasury securities, the interest rate by which the Federal government is liable on Treasury securities held by the Fed is lowered. Symmetrically, if the Fed sells Treasury securities, the Federal Government’s interest burden, which is paid through taxes denominated in dollars, is raised. By providing a guarantee for State debt, the Fed delivers the capability for the federal government to use fiscal policy to regulate aggregate demand. Thus, the extent to which fiscal policy is an option is determined by the burden of the federal government's interest payments on Treasury securities to the Fed (cf. Lerner, 1943; Domar, 1944).

From this perspective, 'underdevelopment', or 'dependency', is the powerlessness a peripheral country to establish its own unit of account and thus is forced to variably peg its national currency to a foreign reference currency. What ensues is the inability to use monetary policy—central bank purchasing and selling of government bonds denominated in the domestic currency for purposes of controlling the money supply, and thus the cost of credit—, and fiscal policy, via deficit spending, for domestic economic needs. Since the central bank is forced to maintain a certain level reserves of the foreign reference currency such that the price of the domestic currency, in terms of the reference currency, does not change, this produces a negative money-multiplier that sets in motion an inherent deflationary bias, which, if not counteracted by capital inflows to spur aggregate demand, can lead to abrupt contraction of the monetary base, stinting any supposed progress towards economic sustainability (cf. Fields & Vernengo, 2012, 2013).

Thus, if any form of government spending is to be engaged, an 'underdeveloped' country has to issue bonds that are not denominated in its own currency. This amounts to the attraction of external commercial loans with the faith of the country's financial markets by foreign investors used as collateral. As such, country risk is most likely going to exist. If confidence is lost in the strength of the country's financial markets, leading to a spread over bonds like US treasury securities, if the foreign reference currency is the dollar, for example, interest rates on domestic foreign currency denominated bonds are likely to rise, making government spending very costly, which removes any form of domestic capacity to spur public investment as an effective countercyclical policy in the face of economic downturns. This has been essentially the case of Argentina before the 2001–2002 crisis, and of the European periphery since the intensification of the Greek crisis in 2011.

Balance of payments constraints can be quite unsupportable, spawning self-fulfilling financial collapses. Moreover, they altogether constitute an ideological mask that normalizes the advance of global cosmopolitan money-capitalist power to dictate the terms of domestic democratic politics (Ingham, 2008). As such, the extent to which a country is 'peripheralized', is the degree to which its creditworthiness is essentially evaluated in terms of the degree to which the state takes steps toward lowering the social wage for the benefit of multinational corporations from the centre (or core).

***This is a work in progress and I would like to thank Matias Vernengo, Brett Clark, & Al Campbell for their assistance.***

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• Ingham, Geoffrey. 2004. The Nature of Money. Cambridge UK: Polity Press
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Introduction to the Second Edition of "The Theory of Monopoly Capitalism"

Introduction to the Second Edition of "The Theory of Monopoly Capitalism" by John Bellamy Foster:

The Theory of Monopoly Capitalism: An Elaboration of Marxian Political Economy was initially written thirty years ago this coming year as my doctoral dissertation at York University in Toronto. It was expanded into a larger book form with three additional chapters (on the state, imperialism, and socialist construction) and published by Monthly Review Press two years later.2 The analysis of both the dissertation and the book focused primarily on the work of Paul Baran and Paul Sweezy, and particularly on the debate that had grown up around their book, Monopoly Capital: An Essay on the American Economic and Social Order (1966).3 In this respect The Theory of Monopoly Capitalism was specifically designed, as its subtitle indicated, as an “elaboration” of their underlying theoretical perspective and its wider implications. 

My original motives for the analysis were twofold: (1) to provide a more thoroughgoing explanation of the economic surplus concept and the theory of accumulation to which it was related, and (2) to correct certain misconceptions of Baran and Sweezy’s analysis that had arisen as a result of the “back to Marx” intellectual movement of the 1970s—and that had led to various traditionalist or “fundamentalist” Marxian criticisms of their work.

See rest here.

The Quality of Monopoly Capitalist Society: Culture and Communications

From the editors of Monthly Review:

Below is a hitherto unpublished chapter of Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966). The text as published here has been edited and includes notes by John Bellamy Foster. The style conforms to that of their book. Part of the original draft chapter, dealing with mental health, was still incomplete at the time of Baran’s death in 1964, and consequently has not be included in this published version. 

Paul Baran & Paul M. Sweezy

The culture of a society includes the education of its young, its literature, its theater, music, the arts—in short whatever contributes to the “training and refinement of mind, tastes, and manners…the intellectual side of civilization.” To inquire further into the culture of monopoly capitalism, we have here selected for attention two areas which offer a larger body of specialized research and which we judge to be decisive for the quality of culture as a whole: book publishing and broadcasting. These are both now big businesses, and they therefore demonstrate the striking extent to which culture has become a commodity, its production subject to the same forces, interests, and motives as govern the production of all other commodities. 

The development of big business in the cultural field has of course been possible only because of the enormous increase in the productivity of labor under advanced capitalism. In earlier times culture was the monopoly of a tiny minority, while the vast majority had to work most of their waking hours to keep body and soul together. 

Read Rest here

"The Endless Crisis" reviewed in Marxist Sociology Section (ASA) Newsletter

 

Book Review: The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, by John Bellamy Foster and Robert W. McChesney

Review by David Fields and Daniel Auerbach

The Monthly Review, since its inception, has been carrying on some of the best works in Marxism. The analytical foundations of what has come to be called the Monthly Review School were set out by the economists Paul Baran, Paul Sweezy, and Harry Magdoff. The lucidly rich works like Monopoly Capital by Baran & Sweezy and Magdoff’s piece on Imperialism (along with Harry Braverman’s work on Labor and Monopoly Capital) have sustained Marx’s invaluable insights into the twentieth and twenty-first centuries.

Read rest here.

What makes capitalism capitalism?

So I had a debate (the sort of debate you can have with 140 characters) in Twitter a few days ago with Unlearning Economics and Jonathan Finegold, among others (links are to blogs not to the twitt feeds). The main question was the definition of capitalism. It is a peculiar feature of modern economics that very few mainstream authors would actually discuss the issue directly, even if there has been a revival of some related issues associated to the relevance of institutions (vis-à-vis geography and culture) in the rise of the West. Robert Heilbronner used to say that the best kept secret in economics is that it was is about the study of capitalism.

I'm not going to get too much into the topic here, but it is worth a brief summary. As discussed before (here) in the blog, the surplus approach suggests that economics is the study of the material reproduction of societies. The existence of a surplus allows for specialization and progress, and the ways in which the surplus is produced and distributed is central for the understanding of reproduction. Broadly speaking, what Marx referred to as a mode of production is comprised of two elements, the material conditions of production or the forces of production, which include the means of production that incorporate a certain technology, and the social relations of production, which include the organization of production and the customs, laws and rules that guarantee the property of the means of production.

For Marx the manifestation of the capitalistic character of the manufacturing process is that the workers do not own the means of production and must sell their labor power. The reason being that an essential condition for capitalists to be able to buy labor power is that workers do not own means of production and are forced to sell in the market their labor force (see Capital, Volume I, Part II, chapter 6). The essence of the capitalist system is that workers sell their labor force, and are in this particular way exploited. That's the specific way in which capitalists obtain a surplus beyond what is necessary for social reproduction.

On the notion of the mode of production Marx perceptively tells us (Vol. I, Book I, Part I, ch. 1) that:

"The mode of production in which the product takes the form of a commodity, or is produced directly for exchange, is the most general and most embryonic form of bourgeois production. It therefore makes its appearance at an early date in history, though not in the same predominating and characteristic manner as now-a-days. 

Even Adam Smith and Ricardo, the best representatives of the school, ... treat this mode of production as one eternally fixed by Nature for every state of society ..."

That's exactly what Max Weber (and many modern authors too, by the way) does. He often refers to capitalism when discussing the middle ages in Western Europe, or ancient China, or the Roman Empire (see for example his General Economic History). This naturalization of capitalism is also typical of mainstream authors, that tend to confuse the existence of markets, or the profit motive, with capitalism.

Production for exchange in the market existed for sure before modern times, and so did exploitation. But the difference with previous modes of production is not simply the more developed material conditions of production associated with the factory system and machinery. It is the specific social arrangement that allows capitalists to control the means of production and extract a surplus from workers that must sell labor power in the market, and are liable of being exploited (more or less according to their bargaining power) that sets capitalism apart. So it is the way in which labor is exploited, one in which workers sell labor power in the market, that makes capitalism capitalism, so to speak [this has interesting implications in the Dobb and Sweezy debates on the transition from feudalism to capitalism, for example, that I'll leave for another post].

Note that while this definition of capitalism is clearly Marxist it builds up on the surplus approach, and is one of (not the only one either) the main contributions of Marx to the surplus tradition (he was critical of the bourgeois elements of classical economics, but built on the analytical structure of the school). In fact, Turgot and Smith both describe the evolution of societies in terms of stages related to the mode of production. It is the economic character of production that governs other aspects of social relations. The four stages were hunting, pasturage, agriculture and commerce. Bill McColloch suggests (see here) quite convincingly that Marx builds on the work of Steaurt.

Also, note that the notion that the profit motive is the differentia specifica of capitalism is tied to the typical methodological individualistic stance of the mainstream. It is hard to say, however, that individuals (merchants, for example) in previous modes of production (say in the ancient mode of production, which was based on slavery) had no desire for profits. If they did, however, what's different about capitalism? That's also why all the alternative theories of history (to the surplus approach) tend to fetichize the role of the entrepreneur (see Landes's last book for the epitome of that approach, which was also displayed in the History Channel's The Men Who Built America). It's the return of Carlyle's hero-worship and the Great Men theory of history.

The last Marxist? Or shortchanging Hobsbawm

(1917-2012)

According to The Economist, Eric Hobsbawm, who has just died on October 1st, was the last of the Mohicans, I mean Marxists. Its news to me. In my view, the surplus approach which was brought back by Sraffa and builds on Marx is the ONLY coherent economic theory left standing. Marginalism (i.e. neoclassical economics) is nothing but a profession of faith, after the capital debates.

Among other things, because there is a role for historical and institutional analysis in the surplus approach, related to both the theories of distribution and accumulation, the work of Hobsbawm and other surplus approach historians is essential. The obituary was very thin on his contributions to our understanding about key issues in capitalist development.

The review of his contributions in The Economist's obituary was typical of what was written in the press (see also here; the exception here). A lot about his life, and range (yes I know he liked jazz, who doesn't?!), but his research was not quoted at all. Comments on his books were almost always restricted to the surveys on economic growth since the Revolutions, the so-called Age of Trilogy.

According to The Economist:

"That Marxist tag threatened to tarnish his reputation, when his lucid and scholarly books on what he called the long 19th century, from 1789 to 1914 (“The Age of Revolution”, “The Age of Capital”, “The Age of Empire”), on nationalism and on labour movements deserved, and won, an audience well beyond leftist circles and academe.

Defiant, Mr Hobsbawm championed Marx to the last. For his intellectual force; for his grasp of the world as a whole, at once political, economic, scientific and philosophical; and not least for his conviction, as relevant in 2008 as in 1848, that the capitalist system, with its yawning inequalities and naked greed, would inevitably—irresistibly—necessarily—be destroyed by its own internal tensions, and would be superseded by something better."

Marxism not only is not relevant, but it almost tarnished his reputation. There is no mention of what was, in my view at least, his major book, namely: Industry and Empire. His book is part of the tradition that suggests that the Industrial Revolution (IR) was demand driven, not supply constrained (like David Landes used to believe in the 1960s, in his Prometheus Unbound). Further, he argued that external demand (as Phyllis Deane) was crucial, and he insisted that without colonial markets, particularly in India (i.e. without Empire) there would be no Industrial Revolution. Imperialism and the search for global hegemony are joined at the hip with the development of Capitalism.

Also, there is nothing about his views on the standard of living debate during the Industrial Revolution.  To modern economic historians like Jeff Williamson and Peter Temin (subscription required) the IR had a positive impact on the living standars of the working class. Hobsbawm, like other Marxist historians, e.g. E.P.  Thompson, was on the pessimist side of the debate. For a modern pessimistic view see Charles Feinstein (subscription required too).

Hobsbawm was not just a popularizer of history, he was central for important debates in the Marxist tradition, which should be central for understanding of modern capitalism. Hobsbawm's theoretical underpinnings of his views of capitalist development, by emphasizing demand, are in the tradition of what we refer in this blog as classical-Keynesianism. Marx's views on distribution as conflictive, which are part of the broader surplus approach tradition, are essential for Hobsbawm contributions to economic history, and show why Marx is still relevant and required reading for anybody that wants to understand capitalism (i.e. the world we live in).

PS: Other central Marxists contributions to historical analysis are associated to the transition to capitalism, and Dobb and Sweezy are still required readings. Note that Marxists suggest that the origins of capitalism are associated to institutional changes in the productive structure (which might be pushed by expanding demand), and not as a result of cultural or geographical matters.

Eugene Genovese and modes of production

Eugene Genovese has passed away. He was a historian of American slavery, and his views were not particularly popular or discussed in economics courses, as far as I know. Mainstream, quantitative historians suggested that his view that slavery in the South was not profitable was incorrect (in particular Engerman and Fogel, the latter a Bank of Sweden prize, also known as the Nobel, winner). The other reason, I imagine, that made his work particularly difficult for mainstream authors was his use of Marxist categories, including one that I still find essential for historical analysis, namely: the notion of mode of production.

Genevose (I read only his The Political Economy of Slavery and not the classic Roll, Jordan, Roll, often praised as his best work) argued that slavery was an economic drag to the Master class, and that the system remained a pre-capitalist formation, with the profit motive having a secondary role in the process of social reproduction. The idea was that, even if the South was connected by trade (cotton mostly) with the capitalist production in England (and New England too), the commercial relations where not central for the relations of production in the plantation system [I find his argument very unconvincing, by the way].

In other words, very much like Dobb, in the Transition debate with Sweezy, Genovese argued that the trade link was not central and could not define the South as part of the capitalist mode of production. In this sense, Southern slavery was for him a distinctive mode of production, one that was seen increasingly from a positive angle by Genovese, as he became more conservative and remained, interestingly, critical of the capitalist mode of production (which in a sense makes him more in tune with old conservatives that also repudiated the mercantilization of social relations).

Note that Genovese, like Engerman and Fogel in this case, thought that the peculiar institution was quite more benign that it is usually thought. In this sense, he reminds me of the quintessential Brazilian analysis of slavery in The Masters and the Slaves, by Gilberto Freyre, who also, even if for different theoretical reasons, saw Brazilian (not Southern, even if he saw similarities) slavery as benign and helped create the myth of Brazil as a racial democracy.

PS: On the slavery debates Nate Cline suggests this paper by Wallerstein (subscription required).