Tuesday, June 22, 2021

The end of Friedmanomics?

Friedman's advisees

Zachary Carter, of Price of Peace fame (a good book that I recommend, btw), wrote an interesting piece on Milton Friedman's legacy, which I think is, as Hyman Minsky said of Joan Robinson's work, wrong in incisive ways. But even before we get to his main point, that the era of Friedmanomics is gone, it is worth thinking a bit about the way he approaches the history of ideas. This is clearly a moral tale for Carter, with good guys and bad guys. Gunfight at high noon. It is more about vision than analysis, in the terminology of Schumpeter.

He starts, like Nancy MacLean in her Democracy in Chains -- I discussed only tangentially
the issue here -- with Brown v. Board of Education, and Friedman's, rather than Buchanan's, insidious behavior favoring policies that allowed the persistence of segregation. He tells us that: "it is hard to believe Friedman was merely naïve and not breathtakingly cynical about these political judgments, particularly given the extreme rhetoric he used to attack anti-discrimination efforts." Yet, as he continues he seems to change his mind and argue that: "yet he appears to have genuinely believed what he said about markets eliminating racism." So it seems he was naïve after all, according to Carter.

Of course, to determine whether Friedman was cynical or naïve is a thankless task and somewhat besides the point. Friedman was analytically wrong. There is a reason Schumpeter's monumental book is A History of Economic Analysis, and not of economic ideology. And Carter argument is built on moral, ideological grounds. Friedman is the bad guy. He tells us that: "[t]he chief political disputes of the 1950s and 1960s, as today, really were about moral values, not technical predictions." Don't get me wrong, vision matters, and it's hard to disentangle from analysis, but it is clear that Friedman's views differed analytically from the ones discussed by the Keynesian disciples at Cambridge (less so in the case of some of the Neoclassical Synthesis Keynesians that came to accept Friedman's notion of a natural rate of unemployment by the late 1960s). But it is hard to say that Friedman was for segregation, when he explicitly says he was against, and Carter himself thinks that he might have been sincere about that. Other than finding archival material that shows that Friedman knew better we are left with conjecture and guess work.

The key analytical differences between Friedman and the more heterodox Keynesians I alluded above, were not so much in his classic book on monetary history with Anna Schwartz, cited by Carter, but in his AEA presidential address from 1968. The return of the natural rate was the foundation that allowed, once the political circumstances were ripe for the demise of the Golden Age, for the return of marginalist analysis. In a sense, the notion of a natural rate of unemployment went full circle and added to the Neoclassical Synthesis notion that Keynes was fundamentally about wage rigidities or other imperfections. Note that this happened after the capital debates, when the logical foundations of the neoclassical theory was in shambles. In favor of Friedman, I might add, he did write the analytical model down in the debate with his critics, in contrast with Hayek, that after abandoning economics in the 1940s dedicated himself to ideological discussions without any analysis. Vision without analysis as my good friend Fabio Freitas poignantly says.

Carter is on firmer ground when he argues that Friedman was not a classical liberal, and had little in common with Adam Smith, although Friedman himself might have thought so; understanding of history of ideas is sadly vey uncommon among economists. Carter tells us that: "Friedman preferred to be identified as either a 'neoliberal' or a 'classical liberal,' invoking the prestige of the great eighteenth- and nineteenth-century economists—while conveniently gliding past their often profound differences with his political project. (John Stuart Mill, for instance, identified as a 'socialist,' while Adam Smith supported a variety of incursions against laissez-faire in the name of the public interest)." The differences with Smith were not fundamentally political though, but analytical (Stuart Mill is a more complicated transition author). Markets did not produce efficient allocation of resources or full employment of labor for Smith, as in the Marshallian world of Friedman and the Chicago School.

At any rate, the notion that Friedmanomics (or Neoliberalism for that matter; on that here) is dead is at best an exaggeration. In part, the misdiagnosis results from Carter's view according to which: "Friedman’s major theoretical contribution to economics—the belief that prices rose or fell depending on the money supply— simply fell apart during the crash of 2008." That's definitely not the main lesson from Friedmanomics. The quantity theory was never particularly dominant. It was a return to the simple notions of marginalism, of the theory of value, that suggests that supply and demand produce optimal outcomes, that lead to full employment, and that can fix all sort of social maladies (including racism, as Carter notes correctly) that was central to Friedmanomics, and neoliberalism.

In other words, his main legacy was the idea that the market society is a panacea. That free markets are prerequisite for a democratic society (Hayek was more forceful in that argument, without even trying to provide the analytical foundations). Something used cynically to favor the interests of a narrow group by the politicians Friedman advised (the three on top, for example). And while it is true that the last financial crisis (the 2008 one) has led to a reassessment of the role of government, and more so with the pandemic, as I discussed here, the notion that Friedmanomics is gone is wishful thinking.

Even though the profession has abandoned Friedman's Marshallian version of marginalism, his notion that markets do produce optimal outcomes has received no serious challenge within academia, and, in policy circles, interventions follow a pragmatic notion that market imperfections are worse than government imperfections. But that could change rapidly, like Larry Summers support for expansionary fiscal policies. Friedmanomics will certainly make a come back.

Sunday, May 23, 2021

Was Keynes a Liberal or a Socialist?

A shorter version at the ISET conference of my Will Lyons Lecture at Franklin & Marshall. And yes, I think Harrod and Skidelsky were right (not Crotty and O'Donnell). He was definitely an Asquith Liberal.

Friday, April 30, 2021

Prebisch After ECLAC and UNCTAD

My talk at the Universidad Nacional de Colombia last Friday, in Spanish of course. Part of the argument is that Prebisch, contrary to what is often assumed, moved from an argument that emphasized the role of the external constraint in leading to underdevelopment during his United Nations years, to one that put the emphasis on the patterns of domestic consumption, and its negative impact on the surplus, following the literature on stagnation, in his last book on peripheral capitalism. I suggest that the change is problematic.

Tuesday, April 27, 2021

Gatekeepers and herd behavior: On Tooze and the radicalization of Krugman

"But that one is holding the poop!"

Adam Tooze, the author of the monumental Crashed (who was, incidentally,  student of Wynne Godley, one of my mentors), wrote a piece for the London Review of Books that has received a lot of praise. While it reviews Paul Krugman's latest book, it provides an overview of the radicalization of New Keynesians, or at least some, that dominate both in academia, and in the corridors or power. The gatekeepers of knowledge and academic  and intellectual influence, with a close connection to power, so to speak. He tells us at the outset that Krugman, the economist that was a bulwark of free trade, even when the theories for which he received his Sveriges Riksbank Prize (aka the Nobel) suggested that some degree of intervention might be good, and that remained even after the 2008 crisis a defender of the conventional macroeconomic model, not only has moved to the left, but also that "in Joe Biden’s Washington, Krugmanism rules."

This is, however, a misinterpretation of the current situation. Tooze suggests that Krugman is one of the "high-powered centrists inching their way towards seemingly obvious political conclusions." The group includes "three centrists – Biden, Janet Yellen and Jerome Powell [that are] undertaking an experiment in economic policy of historic proportions." And he, also, argues that: "what sets Krugman apart within this cohort is the way he has, since the 1990s, stopped being a gatekeeper of the status quo and instead become its critic. In this respect his closest analogue is Joseph Stiglitz, also once of MIT, a member of the Clinton administration and chief economist to the World Bank. Both men have indisputable standing as members of the elite club of New Keynesians."

I see Krugman as being closer to what Colander, Holt and Rosser referred to as the cutting edge of the profession. The role of cutting edge of the profession, in my reply to them (see the paper in Fred Lee and Marc Lavoie's book here), is to make more reasonable policy propositions, while maintaining the notion that markets do produce efficient outcomes, in spite of the unsurmountable logical problems brought by the capital debates, and that led to the rise of vulgar economics. Krugman in that sense is the epitome of the cutting edge. Of course, in order to make reasonable points he would discard many of his own ideas. But he is no critic of the mainstream. The problem with Tooze's argument lies in there. Krugmanism cannot rule, if he basically had to discard his ideas in order to remain relevant. And relevant here simply means that he can be seen to be on the right side of history, more skeptical of free markets, free trade, and willing to accept significant expansion of deficits and debt.

The ideas that won the day and rule in Biden's America are heterodox ideas, that in fact, until very recently Krugman dismissed as not serious. The possibility of continuous expansion of the welfare state, and the expansion of fiscal deficits and debt were anathema to him. Not only he was against expansionary fiscal policy, but even 'Medicare for All,' the signature proposal of Senator Bernie Sanders, something that is common in all advanced economies, was dismissed as a political nonstarter. And certainly that idea, which is not that radical, has remained in the background, and is unlikely to be pushed by the 'radicalized' Biden administration. Perhaps even Krugman still thinks is far too lefty to be acceptable in the United States.

Biden might be the president, and he has a lot of power about what elements of the agenda to push, and he has certainly moved to the left. No doubt about that. Not surprisingly Heather Boushey and Jared Bernstein, economists with heterodox and labor connections, are defending the fiscal expansion from the Council of Economic Advisers (CEA), while Larry Summers, the quintessential insider of the Clinton and Obama administrations, is criticizing from outside. But the Democratic Party has moved to the left, and the politicians have followed. It is the party of Bernie and Alexandria Ocasio-Cortez (AOC). And the establishment knows they need to move if they want to remain relevant, and have a fighting chance in 2024, since the working class is radicalized, and many will abandon the party if Biden does not deliver.

They are like the French politician that, seeing the masses pass in protest, tells his friends in the café he must leave and follow them, since he is their leader. This is, it goes without saying, more like herd behavior, than leadership. Krugman is, in that sense, the leader of an intellectual sea change about views on the role of the state in the economy.

Tooze may think that these arguments are just the diatribes of those in the left that are angry,* infuriated he argues, with the slow pace of change in the center. The issue is that, even though Krugman is following the herd, he certainly is a central gatekeeper in the economics profession. A profession that has been attacked for good reasons, for its excessive influence in policy, and the recurrent blunders of its luminaries.

Krugman still argues in terms of the conventional model, that he defends, as having done a good job explaining the 2008 crisis. People like Wynne Godley, that truly foresaw the 2008 crisis, often only received the acknowledgement ex-post, sometimes too late, after passing away.** Krugman dismisses heterodox economists as not serious. A type of red-baiting of heterodox economists with significant impact on the ability of the profession to change. He also validates some of worst within the mainstream and is willing to play by their harsh rules.+ This is, of course, because the prestigious teaching positions he held, and still holds, the 'Nobel', that was created to give respectability to certain ideas, the weekly column in the NYTimes are all powerful platforms. The danger in this, in accepting Krugman's narrative that he has been right all along, is to convince ourselves that the profession has indeed changed. Now the dangers of neoliberalism and their main defenders, mainstream economists, are gone. The profession is rehabilitated. But the retreat of neoliberalism is only temporary. Krugman and other gatekeepers will change their tune when the current Keynesian moment passes. If the Bidenomics experiment ends up being of historic proportions, and I do hope it does, although that is still too soon to tell, it will not be a victory of Krugmanism. It will be a victory in spite of it.

* I am not as angry as Paul Romer, though.
** On Krugman critique of Godley's 'hydraulic' model, and my response go here.
+ He famously said: "By the early 1980s it was already common knowledge among people I hung out with that the only way to get non-crazy macroeconomics published was to wrap sensible assumptions about output and employment in something else, something that involved rational expectations and intertemporal stuff and made the paper respectable. And yes, that was conscious knowledge, which shaped the kinds of papers we wrote." [Italics added] See the quote and a discussion of the role of another gatekeeper in France that also won a 'Nobel' here.

Wednesday, April 21, 2021

Life among the Econ: fifty years on

By Thomas Palley (Guest blogger)

Almost fifty years ago, the Swedish econographer Axel Leijonhufvud (1973) wrote a seminal study on the Econ tribe titled “Life among the Econ”. This study revisits the Econ and reports on their current state. Life has gotten more complicated since those bygone days. The cult of math modl-ing has spread far and wide, so that even lay Econs practice it. Fifty years ago the Econ used to say “Modl-ing is everything”. Now they say “Modl-ing is the only thing”. The math priesthood has been joined by a priesthood of economagicians. The fundamental social divide between Micro and Macro sub-tribes persists, but it has been diluted by a new doctrine of micro foundations. The Econ remain a fractious and argumentative tribe.

Read paper here.

Tuesday, April 20, 2021

PKES webinars: Post-Keynesian economics and developing countries

22 Apr 2021 None –27 May 2021 None

The Global Financial Crisis of 2008 and the COVID pandemic that erupted in 2020 have reinforced criticisms of the main, orthodox current economic theory. At the same time, they highlighted the need for and importance of alternative approaches such as Post-Keynesian Economics (PKE). The Post-Keynesian Economics Society (PKES) is an initiative that fosters research and dissemination within the framework of PKE. Furthermore, PKES is committed to working towards a strengthening and an internationalization of heterodox economics networks. The shift to online events due to the covid crisis provides an occasion for such international collaborations. We have worked with the Italian PK network and want to convene a series of webinars with Argentinean PK scholars, which we hope will lead to the launching of the Argentinean Post-Keynesian Association (APKA).

APKA’s objective is to develop a network between economists and other scholars with similar interests, perspectives and approaches, in order to support and disseminate research linked to PKE. We recognize the diverse heterodox traditions of Argentine and more broadly Latin American schools of economic thought with strong links with PKE. Therefore, the APKA extends the invitation to scholars of other traditions such as Structuralism, evolutionism, classical-Sraffianism, institutionalism, regulation theory, feminist economics and ecological economics.

This spring we are organising a series of webinars that explore that the dynamics of developing countries and what PKE can contribute to that. We will analyse financial dynamics, productive structures and the relation between Latin American structuralists and PKE. Each webinar will have two speakers, one based in Argentina and one based in Europe.

Thursday 22/4, 12 noon Argentina = 4pm UK

Financial dynamics in developing countries

Chair: Engelbert Stockhammer (King's College London, UK)

Pablo Bortz (UNSAM, Argentina): "Global financial flows in Kaleckian models of growth and distribution"

Annina Kaltenbrunner (Leeds, UK): "International financial subordination: a critical research agenda"

Joining link

Thursday 6/5, 1pm Argentina = 5pm UK

PKE, productive structure and economic development

Chair: Pablo Bortz (UNSAM, Argentina)

Martín Abeles (UNSAM, Argentina): TBC

Sara Stevano (SOAS University of London, UK): TBC

Joining link

Thursday 27/5, 1pm Argentina = 5pm UK

PKE and other heterodox traditions in Latin America

Chair: Florencia Medici (National University of Moreno, Argentina)

Danielle Guizzo (University of Bristol, UK): TBC

Matías Vernengo (Argentina): "María da Conceição Tavares and Heterodox Economics"

Joining link
Organising committee

Pablo Bortz, Florencia Medici, Engelbert Stockhammer

Thursday, March 18, 2021

Friday, March 12, 2021

Beyond Neoliberalism in Chile: Lazzara and Pérez Caldentey

Video of the lecture by Michael Lazzara and Esteban Pérez Caldentey, part of the seminar on Memories of Neoliberalism at Bucknell University.

Tuesday, February 23, 2021

Fourth Godley-Tobin Lecture: Marc Lavoie on Godley vs Tobin on Monetary Theory

Part of the Eastern Economic Association Meeting, and sponsored by the Review of Keynesian Economics.

Galbraith on the Texas Energy Debacle

This piece shows very clearly the limits to deregulation in the case of energy markets. Jamie's oped was published in Project Syndicate, and a slightly different version is available here at INET, in which we find out that radical free market policies ended up in what he termed 'selective socialism.' The relevant paragraph:

the price mechanism failed completely. Wholesale prices rose a hundred-fold – but retail prices, under contract, did not, except for the unlucky customers of Griddy, who got socked with bills for thousands of dollars each day. ERCOT was therefore forced to cut power, which might have been tolerable, had it happened on a rolling basis across neighborhoods throughout the state. But this was impossible: you can’t cut power to hospitals, fire stations, and other critical facilities, or for that matter to high-rise downtown apartments reliant on elevators. So lights stayed on in some areas, and they stayed off – for days on end – in others. Selective socialism, one might call it.

There is a short video here too. 

Monday, February 15, 2021

10 Years of Naked Keynesianism

A day like today back in 2011. First post here. I was at the University of Utah back then, and blogging had been going for a while, but nothing that was close to the kind of heterodox economics that mattered to me. Also, the Review of Keynesian Economics (ROKE) did not exist yet. More than 2000 posts and 4 million visits later the blog has certainly passed its peak. Interestingly enough the post with more visits is about Venezuela, but the second is less of a surprise, the one on the capital debates. Then there are popular posts on Brexit, Capitalism and MMT. It is less an instrument for teaching to me know than it was at the beginning, and I have often thought of just stop blogging. Yet at different times when I debated what to do, I would get an email, or meet a student at a conference that would tell me that this blog had been the main, and sometimes the first source of heterodox ideas they encountered. Or friends that told me they used it in classes, or asked to post something. It became somewhat of a public good for at least part of the heterodox community. So the blog lingers. Thanks to all my co-bloggers, and the readers!

New Intro to Macro with a classical-Keynesian approach

New textbook by Alex M. Thomas, from Azim Premji University, Bengaluru, India. From the back cover:

Macroeconomics: An Introduction provides a lucid and novel introduction to macroeconomic issues. It introduces the reader to an alternative approach of understanding macroeconomics, which is inspired by the works of Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and Piero Sraffa. It also presents a critical account of mainstream marginalist macroeconomics. The book begins with a brief history of economic theories and then takes the reader through three different ways of conceptualizing the macroeconomy. Subsequently, the theories of money and interest rates, output and employment levels, and economic growth are discussed. It ends by providing a policy template for addressing the macroeconomic concerns of unemployment and inflation. The conceptual discussion in Macroeconomics is situated within the context of the Indian economy. Besides using publicly available data, the contextual description is instantiated using excerpts from works of fiction by Indian authors.

Buy it here

Thursday, February 11, 2021

Prebisch’s Critique of Bretton Woods Plans

Prebisch, Williams and Kalecki

New Working Paper with Esteban Pérez at the networkideas. From the abstract:

The name and work of Raúl Prebisch are often associated with the problem of long-term economic development in Latin America. Less well known and explored is Prebisch’s contribution to the study of the monetary and financial problems of the countries of the periphery in relation to those of the center. Prebisch analyzed the post-WW-II monetary plans of John Maynard Keynes and Harry Dexter White from the perspective of their compatibility with his national autonomous monetary policy proposal. He thought that both plans had important shortcomings that would prevent the achievement of their intended objective, international equilibrium in the balance-of-payments. The plans ignored the differences in the levels of development between center and periphery. These differences implied that economic and monetary phenomena could not be viewed through the same lens and that all countries could not be subject to the same norms in monetary policy. Prebisch’s concerns were shared by John H. Williams and also, by Michal Kalecki.

Friday, February 5, 2021

The New IMF and the Covid Crisis


Video of the roundtable sponsored by the Review of Keynesian Economics on the changes (or lack of) at the IMF with Ilene Grabel, Marc Lavoie, Esteban Pérez Caldentey and Florencia Sember.

Monday, February 1, 2021

'Rethinking capacity utilization choice: the role of surrogate inventory and entry deterrence'

 By Thomas Palley

This paper presents a macroeconomics-friendly Post Keynesian model of the firm describing both an inventory theoretic approach and an entry deterrence approach to choice of excess capacity. The model explains why firms may rationally choose to have excess capacity. It also shows the two approaches are complementary and reinforcing of each other. Analytically, the paper makes three principal contributions. First, it provides a simple framework for understanding the microeconomics of capacity utilization choice. Second, it reframes the Post Keynesian discussion of capacity utilization by making excess capacity choice the key to understanding normal capacity utilization. Third, it implicitly challenges Neo-Kaleckian wage-led growth theory as the model shows choice of the optimal excess capacity rate is independent of the level of demand.

Read rest here.

Tuesday, January 5, 2021

The Worldly Philosophers go to Washington: Bankers and Generals

Fourth episode, where I discuss the Bank Wars, in particular the disputes between Biddle and Jackson, its relation to the Bullionist Controversy in England, and the ideas of Henry Carey, of whom Marx said: “bourgeois society in the United States has not yet developed far enough to make the class struggle obvious and comprehensible is most strikingly proved by H. C. Carey (of Philadelphia), the only American economist of importance."

Tuesday, December 29, 2020

From Regulation to Deregulation and (Perhaps) Back: A Peculiar Continuity in the Analytical Framework

New working paper with Bill McColloch, published by the Centro di Ricerche e Documentazione "Piero Sraffa." From the abstract:
The rise of the regulatory state during the Gilded Age was closely associated with the development of Institutionalist ideas in American academia. In their analysis of the emergent regulatory environment, Institutionalists like John Commons operated with a fundamentally marginalist theory of value and distribution. This engagement is a central explanation for the ultimate ascendancy of neoclassical economics, and the limitations of the regulatory environment that emerged in the Progressive Era. The eventual rise of the Chicago School and its deregulatory ambitions did constitute a rupture, but one achieved without rejecting preceding conceptions of competition and value. The substantial compatibility of the view of markets underlying both the regulatory and deregulatory periods is stressed, casting doubt about the transformative potential of the resurgent regulatory impulse in the New Gilded Age.

Download full paper here

Monday, December 28, 2020

Leo Panitch and the Lessons from Socialist Defeats


A few weeks ago I bought the little book on top (a new edition of a previously published one, I think). Sadly not long after I learnt of Leo Panitch's untimely death (obit by Chibber here). The book tries to account for three recent defeats of the democratic socialist left in recent times, even though it was written before the ultimate defeat of Bernie Sanders by the establishment candidate earlier this year. He and his co-authors discuss the rise of democratic socialism, and the consequences of the defeat, or one might say the caving, suffered by Syriza, which they point out was "the only party to the left of traditional social democracy in Europe that succeeded in winning a national election"* (p. 29), and what they call "the devastating defeat Corbyn suffered at the hand of Boris Johnson in December 2019" (p. 67).

The main lesson about the Syriza failure, even before the somewhat expected electoral defeat in 2019, was the absence of a Plan B. It could not back it's challenge to the Troika's austerity plans, since there was no plan for exiting the Euro, and they assume that would have led to leaving the European Union too. They say: "There was a marked lack of seriousness, if not dishonesty, behind the tendency to treat the referendum as proving, not just the massive public support for resisting further Troika-imposed draconian austerity (which was the question actually posed) but that the same support would have existed for leaving the eurozone, and most likely the EU, in light of the capital and import controls that this inevitably would have led to." In a sense, the notion is that there was support (from the middle class?) for pushing against the Troika, but not really for leaving the Euro. On Syriza's betrayal of the No Referendum see the old post by Stavros Mavroudeas here.

The lessons in the Corbyn case are less clear to me. They praise the Labour Party's 2019 Manifesto as being "more coherent and progressive [than the 2017 one], especially in making the environmental crisis rather than the need for export competitiveness, the overarching framework for the radical industrial strategy" (pp. 67-68). But they seem concerned fundamentally with how markets would punish a more radical government, and with the absence of "plans to deal with capital flight or a run on the pound" and the silence on "how and when to introduce controls over the movement of capital" (p. 65; although that seems more about the 2017 Manifesto). That notion of the dangers of capital blackmailing left of center governments seems to be part of their general view. They also tell us (p. 82), regarding the Meidner Plan in Sweden to socialize the ownership of the means of production,  that it was "resisted by Palme's Social Democratic government... [because] it had a fatal flaw: why would owners, knowing there is a timetable for their expropriation, continue to invest?"

Of course, a left of center governments could use monetary policy tools to avoid capital flight (including higher rates, and not just controls), and investment depends considerably more on whether the economy is growing or not. But my main problem with the discussion on Corbyn's defeat is their unwillingness to deal with the issue of Brexit and the role it played in his defeat more explicitly. My views on Brexit have not changed much since this post, so I'll avoid getting into it. But it seems clear that, like in the United States, in order to discuss the economic grievances of the working class, the left of center parties must be willing to discuss more directly the problems of economic integration.

Sanders has been doing that, and yet, he lost a second time. The book cannot discuss that, since it was written, it seems, before April and the victory of Biden in the primary. Here the issues of the inability to win, to a great extent because the party machine makes it impossible, opens the discussion of whether fighting inside the Democratic Party is the correct strategy. Like Michael Harrington, I believe that there is little alternative. I'm not sure that's their view in the book. At any rate, they do praise Bernie for having "a class-focused campaign" (p. 71) and spend a good amount of ink (pp. 74-86) criticizing Elizabeth Warren's firm based rather than class-based struggle for democracy (p. 87). It seems that a reform both of the primary system within the Democratic Party and an elimination of the electoral college are needed for a democratic (lower case) society in the US.

If there is a lesson, although it's not expelled out explicitly in the book, is that the forces of neoliberalism are incredibly strong, and resilient. Perhaps, that's a lesson that could have been seen in the several defeats of the left in Latin America with the end of the pink tide a few years ago. In the case of Latin America, lawfare, the use of the media, and the international institutions, and more recently even military force (in the case of Bolivia)+ were central to defeat left of center governments. In the case of Chile, it's worth remembering the role of the Constitution in tying the hands of left of center administrations, and how a referendum was needed to overturn Pinochet's charter. And the book suggests correctly in my view that "democratization can't occur without changing the context within which economic units, and thus workers, relate to each other" (p. 85). At any rate, Panitch always forced us to reflect, and this last book continues to do so.

* Podemos in Spain is part of the government coalition, of course.

+ Although international organizations like the Organization of American States were crucial too, and the coup was eventually defeated by the democratic forces on the left.

Tuesday, December 15, 2020

Economics without Gaps: on Ibn Khaldun and non-Western traditions in the history of ideas

Ibn Khaldun, Arab scholar

A piece* from a few years ago, has again become somewhat popular and it has been making the rounds. It suggests that the Arab scholar Ibn Khaldun developed the ideas of classical political economics in the late XIV century, about half a millennia before Adam Smith, often seen as the father of classical economics, and of modern economics. Some would suggest that Khaldun was the real father of economics (or stepfather in the first essay on top). To a great extent, the discussion of the role of non-western scholars tries to show that an Eurocentric bias has dominated the history of economic thought. This discussion goes hand in hand with the notion that the Rise of the West and the so-called Great Divergence are relatively recent phenomena.

There are many elements in that assessment that are correct. Schumpeter's massive History of Economic Analysis does mention Khaldun in passing on his discussion of historical sociology, but he also argues that between the ideas of classical antiquity and scholastic thinking there was a great gap.** In his words: "So far as our subject is concerned we may safely leap over 500 years to the epoch of St. Thomas Aquinas (1225–74), whose Summa Theologica is in the history of thought what the south-western spire of the Cathedral of Chartres is in the history of architecture." There is little recognition of the role of Arab scholars in maintaining and expanding the knowledge of classical antiquity in almost all fields. And in the field that eventually would be associated with political economy, Khaldun's Muqaddimah, or Introduction (or Prolegomena), does indeed provide significant progress over the work of classical antiquity.

His work essentially deals with the cyclical rise and fall of caliphates, and analyzes the material conditions for these historical circumstances. Robert Irwin in his intellectual biography of Khaldun, reminds us that: “Arnold Toynbee, who produced a twelve-volume study of the rise and fall of civilizations, described Ibn Khaldun’s theoretical treatise on history, the Muqaddima, as 'undoubtedly the greatest work of its kind that has ever been created by any mind in any time or place'.”

However, while all of that is correct, and should lead to a more encompassing understanding of the role of non-western economic thinking, it is also important to bear in mind what was the contribution of Ibn Khaldun, how it fits in the history of ideas, and also in what sense classical political economy authors have an original theoretical framework. That tradition, it is worth noticing starts really with Sir William Petty, not Smith, as noted by whom I would suggest is the first serious historian of economic ideas, Karl Marx, in his Theories of Surplus Value. Furthermore, it is important to be careful and avoid the normal confusion of seeing Adam Smith as the father of modern, meaning marginalist (or neoclassical), economics. As a general principle, I would also be critical of the notion that the history of economic ideas is the repository of old versions of modern economic theory, that have to be deciphered and understood in modern guise. It was exactly this kind of thinking that led many marginalists, like Alfred Marshall, to suggest that they were expanding on the ideas of classical authors like David Ricardo, when in fact they were subverting them.***

I would suggest that there are two important differences between Ibn Khaldun and the Anglo-French tradition of the surplus approach, associated with the Petty-Cantillon-Quesnay-Smith-Ricardo (and I would add Marx; on the first three that form the basis for the work of the surplus approach see this chapter by Tony Aspromourgos) line of evolution. First, while Khaldun is interested in the cyclical rise and fall of civilizations, associated to the sedentary, urban, mercantile caliphates bordered by nomadic, desert populations, Smith developed at the same time and independently from Turgot (on that see Ronald Meek), a linear four stage theory of economic development, from hunting (and gathering), to pastoral, then agricultural, and finally commercial societies, which is the term he used for societies like the England of the time, were manufacturing activities and financial relations were significantly developed. These ideas would lead to Marx's materialist conception of history based on the notion of modes of production, evolving from ancient slavery and feudalism to capitalism.

It seems that while a perception that, what we now call, the social sciences are historical in nature was clearly in Khaldun's writings, the conception of history, and the scope of the analysis was different than the one in Smith. The reason is not only related to the fact that Khaldun was writing in the Middle Ages, before the rise of capitalism, but also, and more importantly it seems, Khaldun was looking at the specific circumstances of Arab societies, even if there were universal lessons in his analysis. The evolution from hunter-gathering to agriculture and to manufacturing are more universal. Further, Marx's conception of modes of production emphasizes the method and the social relations of production by which surplus is extracted from workers. Command and coercion in the context of slave and feudal societies, and market relations in the case of capitalism.

The second difference is related to the notion of surplus, and the source of value. It is true that there was a notion of a surplus beyond what is needed for survival in Khaldun's work, and that it allowed in his view for crafts and division of labor, or specialization, as would be discussed by classical authors much later. And there was also a clear sense that labor was the source of value, and that a producer must cover the costs of production. Some have argued that one can see the labor theory of value (LTV) in Khaldun's writings. However, it is clear that the conception of profits and of prices in Khaldun was not in conformity with the LTV.

He argues in chapter 5 of the Muqaddimah that: "Commerce is a natural way of making profits. However, most of its practices and methods are tricky and designed to obtain the (profit) margin between purchase prices and sales prices. This surplus makes it possible to earn a profit." In other words, the surplus results from selling at a higher price than purchased in the process of exchange. Profits were not a residual obtained in the process of production for Khaldun, after the conditions for reproduction of society, in particular the subsistence of the labor force, was obtained. This is, of course, the whole point of classical political economy. The understanding of the objective, material conditions for the reproduction of society. Profits were obtained in the process of production, and that would allow to understand accumulation, since the surplus was the basis for economic growth. Accumulation and not the cyclical fluctuations of civilizations were at the center of classical political economy analysis, reflecting, perhaps, the dynamic nature of capitalist societies.

These differences suggest that Khaldun was, most likely, an important source for scholastic, and mercantilist/cameralist authors to which classical authors were to some extent responding in their own writings. Mercantilists authors also thought in terms of profits in the process of exchange, which was to some extent to be expected in pre-capitalist societies with a large mercantile sector. These were essentially agrarian societies, and the transformation of the structure of production was not yet significant.  Recognizing the role of Arab scholars in preserving the texts and the knowledge of ancient scholars, and their ability to move beyond the ancients is crucial for the proper understanding of the evolution of economic ideas. But it is important understand their actual contributions to avoid more confusion in the history of ideas.


* In this piece it is suggested that the history of thought textbooks by Screpanti and Zamagni and by Roncaglia are mainstream texts, and put in the same category with Blaug's book. That is of course a misconception. The former differentiate between classical and marginalist traditions, and do not argue for the continuity, as Blaug does, and can be seen as clearly heterodox in nature.

** Spengler (1964) is the classic study on Khaldun by western historians of economic thought. Although his essay is careful about Khaldun's contribution it might give to much credence to the notion that the "economic literature of Islam can be traced to the Economics of Bryson", for the ancient Greek philosopher. 

** It is worth noticing that the piece cited at the beginning suggests that Khaldun is a precursor of Smith, presumably because of the division of labor, but without a distinction of productive and unproductive activities, but also of Alfred Marshall. We are told that Khaldun "analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century: the islamic scholar also described the relationship of demand and supply." Supply and demand forces were well-known before Khaldun. Marginalism suggested that long-term prices, what Smith called natural prices, were determined by those forces.

Monday, December 14, 2020

Heterodox Challenges in Economics by Sergio Cesaratto

The English translation of Sergio Cesaratto's book has been published. A Free chapter is available at the Springer website here.

From the promotion pamphlet:

This book discloses the economic foundations of European fiscal and monetary policies by introducing readers to an array of alternative approaches in economics. It presents various heterodox theories put forward by classical economists, Marx, Sraffa and Keynes, as a coherent challenge to neo-classical theory. The book underscores and critically assesses the analytical inconsistencies of European economic policy and the conservative nature of the current European governance. In this light, it examines the political obstacles to proposals to reform the European monetary union, as well as those originating in the neo-mercantilist German model. Given its scope and format, the book offers a valuable asset for researchers and members of the general public alike.

Go get one immediately! 

Saturday, December 12, 2020

Poor Richard Goes to London: The Economic Ideas of Benjamin Franklin

Another episode of my podcast on The Worldly Philosophers Go to Washington: From Alexander Hamilton to Janet Yellen. The ideas of early classical political economists and their influence in America are analyzed in this episode. The role of Sir William Petty’s ideas in the development of Benjamin Franklin’s early policy proposals is discussed. It is noted how Franklin had a firm grasp of the main economic theories of his time, even before some of these ideas were fully developed in Europe, by the Physiocrats and Adam Smith. In fact, some of Franklin’s original ideas influenced European political economists. The notion that the influence of economics is a recent phenomenon cannot be supported by the evidence.

Saturday, December 5, 2020

From Regulation to Deregulation and (Perhaps) Back (Talk in Portuguese)

My talk at the Federal University of Rio de Janeiro yesterday, on the rise, fall, and perhaps rise again of the regulatory state in the US, and its relation to ideas, particularly institutionalist, and Chicago School views, as expressed by John R. Commons and George Stigler. In Portuguese, of course.

Friday, November 27, 2020

Diego Maradona (1960-2020): Some Bittersweet Reflections

By Thomas Palley (guest blogger)

Maradona was more than just an extraordinary footballer. He was also a complicated social icon. That further distinguishes him from other footballers, though Pele also has some of that… and it is great to see young footballers like Marcus Rashford taking up that mantle.

He was both rewarded by and terribly exploited by the system. The system treated him like a “race horse”. They wanted him to play at all cost and pumped him with drugs. They did not care about the physical and psychological costs to him. That contributed to his addiction. Maybe he would have gotten there on his own owing to personality reasons, but the addictive pain-killers they fed him sure gave him a healthy shove in that direction.

He came from great poverty, from a shanty town. He never hid that and insisted on keeping the connection. I’m told he had tattoos of Fidel Castro and Che Guevara. He also had a relationship with the Pope (Francisco, not Benedict II or John Paul II). That politics speaks well of him, even if it was not carried through with the consistency of an intellectual or political activist.

As for the “Hand of God” goal, it obviously sits badly with England supporters. But in a way it fits with Maradona’s personality and social icon standing – a sort of roguish Robin Hood’s goal. I’ve come to accept it and even enjoy it.

Did you know that in Argentina, before inflation made them irrelevant, they used to call the 10 (diez) peso note a “Diego”? That is how much people loved him.

Published originally here.

Wednesday, November 18, 2020

Capitalism Alone Against Itself: Liberal Democratic versus Political Capitalism

I finished Branko Milanovic's thought provoking Capitalism Alone this summer. But I haven't had much time to write on the blog, as you might have noticed. This is certainly not a review, and I would definitely suggest that you go and buy the book as soon as you can and read it. It is a serious discussion of the future of capitalism, that word that, as Heilbroner often reminded us, was at the center of the discipline, but seldom discussed openly by economists. He cited, if memory doesn't fail me that it didn't appear in Mankiw's Principles textbook, at least back then in the 1990s, when it was published. I always note that Allan Meltzer wrote a little book titled Why Capitalism? were he makes no explicit effort in defining it, even though a definition can be gleaned from it.*

The definition most economists use leans more on Max Weber than Karl Marx, or the materialist tradition of the surplus approach upon which he built on. Branko is a pluralistic economist, well read and influenced by several authors, not all of them conventional. The discussion of the definition of capitalism is complex, and he separates, in its modern version two archetypes of capitalism, that are in a mortal battle for global hegemonic power, namely: Liberal Meritocratic Capitalism, represented by the West, and particularly by the United States (perhaps more credibly now after the election), and Political Capitalism, represented by the rise of the rest, with China at the head.

When assessing whether China is capitalistic Branko does use the conventional Weberian definition (p. 87), but that seems to be a pragmatic approach to provide the basis for his argument that China (and Vietnam, Malaysia and Singapore too, p. 91) does conform to the Weberian notion of political capitalism, a term used by Weber to discuss ancient forms of capitalism. But there is a concern with how elites maintain control by non coercive forces in Liberal Capitalism, and about the need to create an indigenous capitalist class in Political Capitalism. Both point out to alternative issue of class conflict, of course, and how surplus is extracted from workers, and points to an alternative view of capitalism. There is, in somewhat Marxist tradition a preoccupation with the role of the bourgeoisie, and an nod to Wallerstein that suggested that there are no capitalists without state support, something I would like to have seen more in the book (p. 116).

In fact, the secondary role of the state, to some extent, the absence of a more thorough discussion of the developmental state in the case of the Chinese experience, is one of the problems with the book. Another would be an emphasis with issues of corruption, which seem to me to be of secondary importance, even if the problem might have increased with financial deregulation, and the rise of tax havens. The emphasis of the book is on the changes associated to the increasing mobility of labor and capital and the problems it poses for both systems. Branko thinks that the welfare state is vulnerable with free labor mobility (p.156), undermining the democratic process in liberal capitalism, and that capital mobility, which he sees more through the lens of Global Value Chains, rather than portfolio flows, and that would lead to higher growth in poorer countries, reducing the need for labor mobility. The book also debunks a few myths, like the notion that robots are coming for your job, or the idea that a Universal Basic Income (UBI) would be a panacea for the economic problems caused by globalization and technological change.

* Invariably it is based on notions of the profit motive (some form of rationalization) as required by markets, and private property, or Weber (plus North, if you prefer). For an alternative discussion see this old post on a view based on the surplus approach, including a critique of the Weberian naturalization of capitalism as something that existed in the past and that explains the golden ages of antiquity.

Saturday, November 14, 2020

The Portrait of the Heterodox Economist as Young Man

Tomorrow at 3pm (EST) a frank and informal talk about heterodox economics, my personal trajectory in the profession and discussions about political economy in Latin America with some young scholars from the YSI initiative. Join here.

Tuesday, November 10, 2020

Capital controls and economic development

My talk at the Universidad Centroamericana José Simeón Cañas (UCA), El Salvador 20/10/2020. On capital controls and development and in Spanish, of course.

Monday, November 9, 2020

The New Failed States and the reaction to COVID-19


Thursday at 9am EST, a roundtable on the "New Failed States" with Antonio Andreoni, Nelson Barbosa, Fiona Tregenna and yours truly. For an old post on the topic go here.

Saturday, November 7, 2020

Is the Worldly Philosophy Dead?

Instead of videos a series of podcasts on the history of political economy, and its relation to economic policy in the United States. This is based on a course I teach for undergraduates.

Saturday, October 31, 2020

Esteban Pérez on John Maynard Keynes

One of my favorite economists, and John Maynard Keynes too. Don't miss this lecture, in Spanish of course, on one of the central economists of the 20th century and its relevance for the periphery, particularly during the current pandemic. I'll post links to the Zoom and Facebook stream soon.

The end of Friedmanomics?

Friedman's advisees Zachary Carter, of Price of Peace fame (a good book that I recommend, btw), wrote an interesting piece on Milton F...