Chokepoints and the resilience of American power

Quinn Slobodian has a good review in the New York Review of Books of Edward Fishman’s Chokepoints: American Power in the Age of Economic Warfare. Fishman’s book, as discussed by Slobodian, suggests that the old geography of imperial power, associated with control over maritime chokepoints, has been displaced, or at least supplemented, by a new kind of geopolitical chokepoint embedded in the infrastructure of globalization itself.

The old strategic passages, Suez, Hormuz, Malacca, have not ceased to matter, of course. But the new chokepoints are less visible. They are located in dollar payment systems, correspondent banking networks, shipping lists, insurance, transaction data, export controls, semiconductor supply chains, and the legal mechanisms that allow American sanctions to reach firms and governments well beyond U.S. territory. The empire is not only in the fleet, but also in the spreadsheet, the compliance office, the server, and the bank account.

Slobodian’s central point, a moral or ethical one, is that Fishman is too complacent about the American use of these instruments. Sanctions and export controls are presented too easily as clever instruments of policy, when in fact they are instruments of economic warfare. They often miss ruling elites and impose enormous costs on ordinary people. They restrict access to medicines, raise the cost of living, reduce growth, and produce humanitarian consequences that rarely enter the calculations of the sanctioning power. No surprise there. Fishman is an insider of the US bureaucracy.

More importantly, he notes that there is also a paradox. Sanctions and economic warfare reveal American power and erode it at the same time. In the short run, they demonstrate the extraordinary coercive capacity of the United States. Washington can freeze assets, cut access to dollar payments, block technology transfers, threaten third-party firms, and punish countries that do business with the wrong partners. In the longer run, however, the repeated use of these instruments encourages both adversaries and allies to search for alternatives. Russia, China, Iran, and even European firms and governments learn that dependence on US-controlled networks is a vulnerability (The Chinese already knew that; see Jake Sullivan’s piece in the last issue of Foreign Affairs).

That is certainly right. But it is also incomplete. Slobodian’s critique captures the self-undermining logic of financial and technological chokepoints, but it underplays the military dimension that makes those chokepoints effective in the first place. The dollar system, the control over payment systems, the ability to impose secondary sanctions, and the capacity to define who can and cannot participate in global markets are not simply instruments of market power or legal jurisdiction. They are embedded in a broader imperial architecture.

That architecture includes US military reach, naval dominance, intelligence capabilities, alliance systems, bases surrounding potential rivals, and the capacity to enforce rules globally. The chokepoint is not only financial or technological. It is also geopolitical and military. The old geography of power has not disappeared. It has been internalized into the institutional and technological infrastructure of globalization. This is important because otherwise one ends up with an overly pessimistic view of American hegemony.

It is true that the strength of the system creates vulnerabilities. The more the United States weaponizes interdependence, the more other countries have incentives to escape from it. China’s efforts to build technological autonomy, Russia’s attempts to find payment alternatives, and the search for non-dollar channels of trade all reflect this dynamic. However, as Tim Barker notes in a recent piece in Phenomenal World, American declinism has often been less a description of terminal weakness than a political language for imperial renewal.

Further, hegemony also reproduces American power. The dollar is not simply a convenient currency that survives because markets trust it. Nor is its dominance ultimately explained by gold, credibility, or some spontaneous market convention. The willingness of agents across the world to accept dollars, to denominate contracts in dollars, to hold reserves in dollars, and to organize their calculations around the dollar rests on power. More precisely, it rests on the capacity of the United States to enforce the rules of the global system.

Monetary hegemony (the role of key currency) depends on military technology, which in turn depends on access to key commodities (mostly energy) and technological dominance (mostly in sectors related to the military), but then access to commodities and military power depend on the ability to spend without significant limits, which is based on monetary hegemony, in a circular and self-reinforcing way.

In a simplified way, since the transition to capitalism, there have been essentially three monetary standards. A silver standard, dominated by the Spanish silver peso (which anchored global trade), and was mostly managed by Italian (Genoese) and then Dutch bankers (Bank of Amsterdam), a gold standard, dominated by British pound (that anchored the Industrial Revolution, 1st and 2nd), and was managed by the Bank of England, and a fiat standard, dominated by the dollar, and managed by the Federal Reserve and the multilateral organizations (IMF, World Bank, BIS, etc.).

The rise of the pound was associated to the demonetization of silver, and the end of Bretton Woods to the demonetization of gold. The end of Breton Woods, in this sense, did not represent the beginning of the end of dollar hegemony. Quite the opposite. The collapse of the dollar-gold link created the first genuinely global fiat standard and enlarged the policy space of the United States. Freed from the gold constraint, the United States could use its currency, its public debt, and its central bank in ways unavailable to other countries. The dollar standard allowed the United States to spend, borrow, and sustain its military and technological capacities on a scale that others could not replicate.

This is the fiscal-military side of dollar hegemony. The hegemonic currency allows the state to spend without the same external constraint faced by peripheral countries. That spending supports the military-industrial complex, government procurement, research & development, and the hidden developmental state. In turn, military power sustains the international order in which the dollar remains central. Monetary power and military power are not separate. They are mutually reinforcing.

This is why the rise of China must be analyzed carefully. China has changed the geography of global production. It is no longer simply a low-wage assembler of cheap consumer goods. It is now a central actor in high-tech manufacturing, electric vehicles, batteries, solar panels, telecommunications, and other strategic sectors. The old complacent view that the United States would innovate and design while China assembled is gone. That was one of the illusions of the pro-globalization cheerleaders.

There is an argument, the energy-hegemony argument,, we may call it, made recently by Danny Bessner in David Sirota’s podcast, and in a more systematic way by Helen Thompson in her book Disorder,* that suggest that China is to become dominant because of its control of clean energy sources. Bessner said that “the country that is the leader in new energy technologies is the country that is going to dominate global economics,” and he frames the present as a possible hinge point in which countries begin shifting toward a different energy base. Britain with coal, the United States with oil, and perhaps China with batteries, solar panels, electric vehicles, and the supply chains required for electrification.

There is something to this. Energy transitions are never merely technical, and they reorganize production, finance, and geopolitics. But one should be cautious about moving too quickly from China’s lead in renewables to the end of American hegemony. Energy leadership matters, but monetary and military power have their own inertia. The dollar system, the Treasury market, US military reach, and the legal-financial architecture of sanctions do not disappear because China sells more electric vehicles.

In other words, China’s productive rise has not displaced the financial and military architecture centered on the United States. The geography of production has changed much more than the geography of money. China remains deeply constrained by the dollar system, while the United States does not need to hold renminbi reserves. The United States has military bases around China’s neighborhood and China does not have anything comparable around the United States. China has become a great manufacturing power, but it has not become the issuer of the world’s hegemonic currency.

This asymmetry is central for understanding the current world order as I suggested in my Jacobin piece. In that sense, the discussion of chokepoints should not lead to the conclusion that American hegemony is disappearing. It should lead to a better understanding of how that hegemony operates. The United States no longer relies only on the direct control of territorial routes, although naval power remains essential. It also controls the institutional and technological circuits through which trade, finance, and production are organized. The sea is supplemented by the payment system, the microchip, the export license, and the sanctions list. In a sense, the notion that finance was central to hegemony not just trade, was true (with technological differences) about the pound centered world of the 19th century.**

The overuse of these instruments may indeed generate resistance. But resistance is not the same thing as successful displacement. Alternatives to the dollar system are costly, partial, and difficult to build. Technological autonomy takes time. Financial autonomy requires deep markets, political power, and geopolitical protection. The capacity to escape American chokepoints is unevenly distributed, and most countries remain trapped in the networks they would like to avoid.

The danger, then, is not that American hegemony is about to vanish. The danger is that it becomes more openly coercive as its legitimacy declines. The veneer of politeness associated to the liberal rhetoric of a rules-based order gives way to the crass use of direct interventions, sanctions, export controls, industrial policy for the center, and austerity for the periphery. The old ideology of globalization promised interdependence and efficiency, gives way to more openly nationalist discourses. The reality of coercive interdependence is the same.

* On the energy-hegemony nexus Thompson says: “Geopolitically, an energy change will necessarily result in upheaval. If Britain were the power that climbed to dominance during the age of coal and the United States the power that ascended during the age of oil and coal, the spectre haunting Washington is that without a decisive American strategic turn to renewables and electrification, the new energy age that depends on metals and minerals will belong to China.” Her statement is more nuanced than Bessner, and less categorical about the rise of China, but certainly linked to the energy transition.

** See my article on the use of central banks as weapons of hegemony, and why Ha-Joon Chang's kicking away the ladder was also monetary and financial in nature.

Two traditions in the history of ideas

The chart above is a summary of my history of thought class here at Bucknell. Over the last years I have used the Vaggi and Groenewegen textbook. The central divide in the history of economic thought is between the classical political economy tradition and the utilitarian-marginalist tradition. The classical tradition, running from Petty, Cantillon, and Quesnay through Smith, Ricardo, Marx, and later Sraffa, is organized around production, reproduction, surplus, accumulation, and distribution among social classes. Its object is the economy as a historically specific social system, marked by conflict over the surplus. By contrast, the Benthamite tradition, passing through John Stuart Mill, Jevons, Marshall, Pigou, and modern neoclassical economics, shifts the center of analysis toward utility, exchange, individual choice, scarcity, and the marginal calculus.

This divide in economics mirrors a broader division in social science, discussed by Randall Collins, between a conflict tradition, concerned with power, class, institutions, and historically evolving social structures, and a rationalist-utilitarian tradition, which begins from rational individuals and explains social order as the unintended or aggregate result of their choices (Collins has four traditions in sociology, and I'm simplifying here). In that sense, the Smith/Ricardo/Marx line belongs, despite its internal differences, to the conflict-centered political economy tradition, while the Bentham/Mill/Marshall line provides the economic counterpart to the rationalist/utilitarian strand of social theory.*

The same divide reappears in modern theories of value and distribution.** In the classical-Sraffian tradition, value is not derived from individual preferences or subjective scarcity, but from the technical conditions required for the reproduction of the system. In a Sraffa-Leontief framework, given the input-output relations of production and one distributive variable, such as the real wage or the profit rate, relative prices can be determined as prices of production. Distribution is therefore not solved by marginal productivity, but reflects a social and institutional determination of the division of the surplus.

By contrast, in the Arrow-Debreu intertemporal model, prices are equilibrium signals that reflect relative scarcities across commodities, dates, and states of nature, ultimately grounded in individual preferences, endowments, and technologies. In that framework, distribution is treated as the result of the initial allocation of resources and the competitive valuation of scarce factors, rather than as a historically specific conflict over the surplus.

Thus, the old contrast between classical political economy and marginalism survives in modern form as the contrast between reproduction, surplus, and distribution on the one hand, and scarcity, preference, and intertemporal exchange on the other.

* It is interesting that Friedman, in his classic Capitalism and Freedom, although he quotes Smith, mostly for rhetorical reasons, in my view, in his crucial chapter on the importance and antecedence of economic freedom over political rights, he only cites Jeremy Bentham as a precursor.

** On this, the kind of confusion in the profession is somewhat surprising. Some people (e.g. Cowen here) suggest that the classical tradition has no alternative to the simplistic labor theory of value (LTV), with prices proportional to the quantities of labor, and ignore the Sraffian model (see this). Alternative, some of the same people assume that the Marshallian, not even the general equilibrium version of say Knut Wicksell, has no problems, not considering the insurmountable issues with partial equilibrium shown by Sraffa's critique. The reasons for the change in the notion of equilibrium, noted by Garegnani go unnoticed by almost the whole profession.

PS: There are plenty of differences between authors in those two traditions. Clearly Friedman and Samuelson had many economic policy differences, and Samuelson and some left-Keynesians like Joan Robinson would agree on some of those.  But on an analytical level, Samuelson was closer to Friedman.

Beyond green scarcity: a simple taxonomy

New post on Substack on ecological economics, inequality, and why environmental degradation is not just a market failure. Degrowth raises real questions, but for the periphery the issue is development, structural transformation, and the external constraint. This is based on the paper I presented at the BIPP conference.

Inflation or Paranoia

Josh Bivens has a good post at EPI on the so-called affordability crisis, making the obvious, but often forgotten, point that affordability is not about prices alone. It is about prices relative to incomes. That is, the price of gas, rent, or health insurance matters, but what matters even more is whether the income of workers has kept pace with the capacity of the economy to produce those things. In other words, the affordability crisis depends not just on the price level, but on the wages of workers, that have not kept up, over the long run, with prices.

This is also why the endless obsession with inflation as the root of all evil is so misleading. I have often noted, following the old Bruno and Easterly paper, that inflation below a relatively high threshold, around 40 percent annually, does not seem to have clear negative consequences for growth (see this post with a link to the paper). Their point was not that inflation is wonderful, or that prices do not matter, but that the conventional view that even moderate inflation is economically disastrous has very little empirical support. Excluding high-inflation crises, they found no consistent relationship between inflation and growth.

Incidentally, when I was at the Central Bank of Argentina and inflation was at around 25 percent per year (below Milei's average inflation, BTW), I often said that inflation was high, but no a problem, since wages were growing faster. In other words, the Very Serious People who treat 5 or 6 percent inflation as Weimar in the making are, as usual, confusing their ideological preferences with evidence.

The real issue with inflation is distributional. If prices rise, and wages follow, the consequences are very different from a situation in which prices rise and wages lag behind. In the latter case, inflation becomes a mechanism for reducing real wages and redistributing income upward. That was one of the central points of my old chapter on money and inflation, that the heterodox tradition, particularly the structuralist and conflict-inflation approaches, understood inflation as the result of unresolved distributional conflict, external constraints, bottlenecks, and institutional arrangements, not simply as too much money chasing too few goods.

The problem is not inflation in the abstract, but who has the power to protect their income when prices change. That is why Josh’s post is important. As he and his co-authors say: "US families’ feeling that life is less affordable than it should be is grounded in objective realities about how the economy has failed them." It's not simply a subjective perception. More or less what I suggested in this post. The affordability crisis is, in that sense, another name for the long wage squeeze.

Note that the paranoia about inflation will have consequences for policy making. Now that inflation increased a bit, as a result of the Iran War, and has remained a little bit above the target, the new Fed chair will a much harder time bringing interest rates down (that is if they do not increase instead). Wall Street anxiety's are more important than the realities of working class people.

PS. On the decrease in real wages see this piece on FT. 

Stocks, flows, and the little matter of debt in dollars

I often tell students that Kalecki had a dictum to the effect that macroeconomics is the art of confusing stocks and flows. As usual, it is not clear he said it exactly that way, but the point is correct. One must never let exact textual evidence get in the way of a good aphorism. The standard textbook story suggests that the flow of saving finances the flow of investment. In fact, the flow of spending is financed by stocks, money, credit, debt, previously accumulated wealth, bank balance sheets, central bank liabilities, and so on. Savings is mostly the accounting record left behind after the spending took place.

The relevant question is not whether the economy has enough saving lying around, but whether the financial system can create the means of payment, and whether the real resources are there to make the additional spending useful rather than inflationary.

In a closed economy with spare capacity, the answer is often more straightforward than the guardians of sound finance would like to admit. As Keynes suggested in his 1940s letter to Sir Edward Bridges (excerpt shown above), domestic expenditure and overseas expenditure are not the same animal. In the domestic case, “within reason anything is possible financially,” provided the case for the expenditure is strong enough.

But open macroeconomics requires an amendment to Kalecki’s dictum. If macroeconomics is the art of confusing stocks and flows, then open macroeconomics is the art of confusing debt in domestic currency with debt in foreign currency. The confusion is everywhere. Somebody notices that part of the public debt is held by foreigners and immediately concludes that the nation is now dependent on foreigners, that future generations are forever burdened. But the key issue is not who holds the debt. The key issue is the currency in which the debt is denominated. Btw, see this old post on Chester C. Davis, then President of the St. Louis Fed, who in 1942 understood perfectly well, as did Keynes, that a domestically denominated public debt did not present the same problems as an external debt.

If the debt is in the domestic currency, the state can always make the payments in that currency. That does not mean there are never distributive consequences, inflationary pressures, or political constraints. It means that default is not forced by the lack of the unit of account in which the debt is payable. The United States does not run out of dollars in the way Argentina can run out of dollars. This is not American exceptionalism in the usual tedious sense. It is merely monetary sovereignty, helped enormously by the fact that the dollar is the hegemonic currency.

Foreign-currency debt is different. It must ultimately be serviced with foreign-currency revenues. In the long run that means export proceeds. Borrowing abroad can postpone the problem, but it cannot abolish it. Principal and interest are not repaid with patriotic speeches or with central bank press releases in the domestic currency. If a country owes dollars and earns pesos, reais, drachmas, or some other less divinely ordained currency, it must somehow get the dollars. Printing domestic currency to buy foreign currency may work when markets are tranquil and foreign exchange is available. But when the problem becomes serious, the exchange rate moves, reserves disappear, import capacity is squeezed, and the only solution becomes devaluation, which is both inflationary and contractionary. That often means default. Keynes knew about that.

This is exactly why Keynes insisted on the distinction between domestic and overseas expenditure. Domestic expenditure mobilizes domestic resources and is paid in domestic money. Overseas expenditure creates a claim on foreign resources and foreign exchange. Keynes’ concern was not the silly household analogy, that Britain should tighten its belt because father had maxed out the credit card or something. His point was that external payments could impose a real constraint because they required command over resources abroad. You can always spend your own money at home, subject to real capacity and inflation. You cannot always spend someone else’s currency abroad, unless you can get it. Keynes was this close of finding out about the external constraint.

In some circles this simple and reasonable notion is mocked or seen as politically biased in some sense (see the tweet above in Spanish; I'm a pseudo progressive and Peronist, an insult I guess,* because I don't get the relevance of fiscal deficits. After that tweet one is tempted to say that for some Very Serious Political Scientists, all debt is external debt as long as the word debt appears in the sentence. The currency denomination, apparently, is a technicality best left to accountants, heterodox economists, and other suspicious characters). This is particularly true in developing countries where foreign debt is a problem, like Argentina. Of course the external debt limits what can be done in the fiscal front. See my paper on that here, and my response to an MMT author from Mexico, who suggested that with flexible rates you should have no need for reserves (in dollars).

So the amended dictum should be that open macroeconomics is the art of confusing domestic-currency debt with foreign-currency debt. The first confusion leads to the idea that saving finances investment. The second leads to the idea that all public debts are external debts. Both errors are useful, of course. They provide employment for orthodox economists, central bank consultants, and Very Serious People. One should not underestimate the Keynesian employment effects of bad economics.

* The funny thing is that the family was very Gorila, as they refer to non or anti-Peronists. As per the first page of the NYTimes below (hard to read, but you can enlarge it), my father's uncle had put Perón in jail in 1945.

Note, however, that my father was not a dogmatic man. He did vote for the Kirchners (not Menem, the Peronist that neoliberals love).

A Left Moral Vision Needs a Political Economy to Match

Gustavo Petro’s “economy for life” captures something essential about the planetary crisis. Turning it into a program requires confronting the structures that stand in the way.

Read the whole article, where I challenge some of the myths about the New Global Order, here. 

Review of Glory Liu's Adam Smith's America

My review of Glory Liu's Adam Smith's America. The book is a valuable history of the many American reinventions of Smith, from the Founding era to the Chicago School. But, as I argue in my review, the central problem is not simply that Smith was read selectively, or that his moral philosophy was ignored. The deeper issue is that Smith belonged to the classical surplus tradition, concerned with production, distribution, accumulation, and conflict, while modern interpreters often read him through the later neoclassical framework of equilibrium, efficiency, and individual optimization.

The Robin/Beckert debate on the “transition” to capitalism

 

Robin and Beckert (wink, wink)

I haven’t finished Sven Beckert's Capitalism: A Global History yet (long semester and still grading), so my thoughts on this are still unfinished. Corey Robin, in his review for The Nation, argues that while the book is an ambitious and impressively researched work, it is ultimately hobbled by deep conceptual confusion and internal contradictions.

Beckert's central thesis is that capitalism "was born global," and he traces its origins back to long-distance merchants in the 12th century. Robin systematically dismantles this starting point, asserting that neither the principle of accumulating capital nor the existence of long-distance trade was new at that time. He argues that Beckert's own evidence repeatedly points away from trade and toward an alternative conclusion. In his view, capitalism's true "foundry" was the alliance between the modern state and capital owners who seized direct control of production, most importantly by transforming the nature of labor exploitation.

Robin also contends that the book's key analytical distinctions collapse under the weight of its own historical detail. Beckert posits a shift from an early, violent "war capitalism" to a more modern "industrial capitalism" defined by wage labor. Yet, as Robin highlights, Beckert's narrative is filled with evidence of persistent and expanding slavery, state coercion, and violent conquest well into the 19th and 20th centuries, making the supposed "radical departure" between the two eras blurry at best.

Ultimately, Robin frames the book's failures as symptomatic of a larger problem facing the "new history of capitalism." In an era where capitalism appears to be a total, all-encompassing global system with no viable alternative, it has lost its historical specificity. Unlike earlier historians who provided a clear analytical definition of capitalism, Beckert's book would be representative of a school that does not use theory, and celebrates it. This is perhaps the most relevant point raised by Robin. He notes that the: "greats of history and theory—Smith, Braudel, Marx, and Weber—are claimed as inspirations, without their presence materializing on the page" and that for the New History of Capitalism School the lack of definition of capitalism is “a virtue … not a vice.” As a result, the analysis of capitalism becomes a-historical, leading to the analytical confusion at the heart of an ambitious, but ultimately flawed book.

The intellectual lineage of the conflict between Corey Robin and Sven Beckert's views, as framed in the former’s review, is to a very large extent a modern reframing of the classic Dobb/Sweezy transition debate of the 1950s (incidentally I used to teach a course, a long time ago, in a far away land that discussed this topic). Beckert occupies the Sweezy position, emphasizing the role of long distance trade, global networks, and circulation. Robin takes on the Dobb role, arguing that the real change is in the social relations of production, specifically the control and organization of labor.

Sweezy argued that feudalism was a stable system that was dismantled by an external force, namely, the growth of long-distance trade and the revival of monetary relations. Beckert makes a strikingly similar argument on a grander scale. His thesis that capitalism "was born global" and originated with 12th century merchants places the engine of change in the act of connecting distant places through trade. Arguably, for both, capitalism comes from the outside, from the networks of exchange that break down older, more localized systems.

Dobb, the orthodox Marxist/Cambridge don, countered that feudalism collapsed due to its own internal contradictions, specifically the class struggle between lords and peasants. This internal breakdown created the necessary conditions for capitalism. In particular, it created a class of dispossessed peasants who had to sell their labor to survive (there are many posts on the topic in this blog; see this one). Robin mirrors this argument in the review. He dismisses Beckert's focus on merchants and argues that: "[c]ontrary to what Beckert sometimes says, his book shows that capitalism does not begin with trade and long-distance connection. It does not arise from merchants behaving like merchants. It does not follow from accumulation of wealth. It begins with capital’s taking control of production and unlocking workers’ highly prized and protected capacity for labor." For Dobb/Robin, the key is not trade, but the fundamental reorganization of how things are made and by whom.

Because Sweezy/Beckert see trade as the driver, their origin story is necessarily diffuse and network-based, not located in one specific place. Beckert explicitly argues against seeing capitalism's origins in "one place" (i.e., England), favoring "the connections between various places." Dobb located the transition specifically in the English countryside, where the transformation of agricultural labor first occurred. Robin, while acknowledging the global scale, repeatedly points to the specific sites where labor was reorganized for production, be it the English countryside or, crucially, the slave plantations of Cape Verde and the Americas, as the places where the "radical innovation" happened.

While the core logic is the same, the Robin/Beckert debate is not a simple repetition of the Dobb/Sweezy one. It's updated for the 21st century in three crucial ways, the centrality of slavery, the role of the state, and the collapse of Soviet socialism.

The original Dobb/Sweezy debate was largely Eurocentric and focused on the transition from feudalism to wage labor. The "New History of Capitalism," which Beckert represents, places chattel slavery and what Beckert calls "war capitalism" at the absolute center of the story. Robin's critique is not just a call to look at wage labor in England (the classic Dobb argument; I used to teach the old debate in a somewhat Dobbious way; see what I did there?). Instead, he uses the Dobbist (is this better?) logic to argue that the slave plantation was a key site of capitalist innovation in production, a brutal factory in the field where new forms of labor control were pioneered. This moves the focus from a binary of feudalism/wage-labor to a more complex reality where coerced and unfree labor were foundational to industrial capitalism. I should note that this reminds me of the Latin American debate between those that thought that there was a feudal like past, and those (e.g. Bagú, Caio Prado) that argued that we entered the world in the mercantile phase of capitalism, fully as part of that global (world) system.

Robin gives the state a much more prominent role than Dobb did. He highlights Max Weber's concept of "political capitalism", the "memorable alliance between the rising states" and capitalists., citing the more recent work by Branko Milanovic. For Robin, the state's military power, its ability to grant monopolies, and its violent suppression of populations were not just helpful but essential to capital's seizure of production. In this respect, I think the work by Priya Satia should had been referenced in this context. As she argues: "state institutions drove Britain’s industrial revolution in crucial ways ... war made the industrial revolution."

This is Robin's final, and harshest criticism. Dobb and Sweezy were arguing in the shadow of the Cold War, a time when socialism appeared as a real historical alternative. Capitalism was understood by both as a specific historical system with a beginning and a potential end. Robin argues that Beckert is writing in an era of capitalist triumphalism, where it seems absolute and eternal. This, Robin suggests, is why Beckert's analysis becomes a blurry, unending story of "the great connecting." Without the political horizon of an alternative, capitalism loses its sharp historical edges and becomes a "Once upon a time..." setting rather than a system to be explained.

I should say that this is not my perception of the book so far. Robin seems to create a false dichotomy. He seems to be arguing that because Beckert emphasizes exchange (the Sweezy position), he inherently cannot properly center the violent relations of production (slavery, state coercion). That is certainly not the case. In Slavery's Capitalism, Beckert's deals the centrality of the peculiar institution for the rise of capitalism in the US. Also, as with the Dobb/Sweezy debate, it is possible that Beckert isn't choosing exchange over production, but noting that global mercantile connections were central in the process that changed relations of production. Beckert might be arguing that the imperative of building a global network of exchange was the primary driver that necessitated and shaped the specific forms of violent production seen in slavery and colonialism.

I'm also not sure that I would read Beckert as accepting a triumphalist view of the global market exchange system, if that is the implication. He is clearly a critic of how a global system of exchange was built on the foundations of slavery and state violence. The disagreement is ultimately about the analytical starting point, class struggle in the fields (Robin/Dobb) or the global network connecting those fields to the factories and markets of the world (Beckert/Sweezy).

Stiglitz on Keynes and the instability of capitalism

 

Stiglitz delivering the 6th Godley-Tobin Lecture in 2023*

The Economist published a short piece by Joseph Stiglitz on Keynes. I would agree with Stiglitz's on the broad political point that Keynes was not a revolutionary socialist, as I have discussed before. He wanted to save capitalism from itself, as they say. Stiglitz essentially says the same. For him: “Roosevelt’s pragmatism and Keynes’s ideas saved capitalism from the capitalists,” because unfettered capitalism in a prolonged depression might not have survived. He also says Keynes was “no left-wing radical,” believed in the market economy, and saw intervention as a “minor fix” rather than a revolution.

Stiglitz correctly suggests that Keynes remained a liberal, not a socialist, and that he was a moderate in politics even if he was willing to experiment pragmatically with policy. In that he differs from Jim Crotty, and Rod O'Donnell's work on Keynes political views, who suggest he was a socialist. Stiglitz, in contrast, suggests that Keynes understood that laissez-faire capitalism had to be transformed or transcended, but he did not abandon bourgeois liberal society. In my paper I say he was “a revolutionary in economic theory, but a moderate in his politics.”

The key difference between Stiglitz interpretation and my view is on theory. Stiglitz’s Keynes is still, to a significant extent, the Keynes of mainstream Keynesianism. Markets can fail badly, can remain in unemployment for long periods, and government spending is needed to stabilize demand. But he frames the issue partly as one of slow self-correction. Even if there are forces bringing the economy back to full employment, “they worked too slowly” to avoid hardship. That leaves open a conventional reading in which Keynes is mainly an imperfectionist, for whom markets may eventually work, but sluggish wages, prices, interest rates, failed expectations related to uncertainty, or financial frictions that make the adjustment too slow.

The disagreement is not over Keynes’ politics, but over the depth of his theoretical break. Stiglitz emphasizes Keynes as the economist who showed that government could stabilize an inherently unstable capitalist economy. I would emphasize Keynes as the economist who broke with Say’s Law and developed the Principle of Effective Demand. That is why, in my interpretation, Keynes is not simply saying that markets adjust too slowly to full employment, rather he is saying there is no automatic tendency to full employment even with flexible wages and prices. Even if he had to resort to uncertainty at the end, because in many ways he remained too close to mainstream Marshallian principles.

The point is not that Keynes thought capitalism was intrinsically chaotic in the sense of constantly tending toward breakdown. Rather, he thought it could be economically stable in a bad equilibrium, capable of persisting for long periods at sub-normal levels of output and employment. He said so in the General Theory, capitalism is “not violently unstable,” and may remain in “a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse."

Stiglitz emphasizes instability in the more conventional economic policy sense. Capitalism produces deep fluctuations, depressions, recessions, and crises, and Keynes showed that government could counteract them. That is true, but it risks making Keynes look like someone whose main theoretical contribution was to show that capitalism is unstable and needs stabilization policy. The Keynes of the 1920s essentially defended that. In my view, Keynes’ more radical theoretical point, only developed in the early 1930s, was different, the system can be stable without being self-correcting to full employment.

Stiglitz stresses Keynes as the theorist of crisis prevention and macroeconomic stabilization, which is fair enough. Certainly that is the dominant view on Keynes. I would stress Keynes as the theorist of stable underemployment capitalism. The danger, for Keynes, was not simply that capitalism would spiral mechanically into economic collapse. The danger was that a system capable of remaining stuck below full employment would generate social and political pressures that could undermine liberal capitalism itself. It was politically unstable, but not necessarily in economic terms.**

Keynes wanted to save capitalism, but not because he thought markets were simply fragile and prone to immediate economic disintegration. He wanted to save capitalism because persistent unemployment and stagnation made the liberal order politically vulnerable, both to Soviet style socialism and fascism, His policy prescriptions aimed at full employment domestically in the face of the rising tide of fascism and communism, both of which he abhorred, as I noted in the paper linked above.

This makes Keynes neither a simple imperfectionist nor a crude instability theorist that believed the system to be on a knife-edge. He was trying to say something subtler. Capitalist economies may be stable enough to survive economically at low levels of activity, but precisely that stability at underemployment makes them politically dangerous. The economic problem is not automatic collapse, but the absence of any reliable automatic mechanism restoring full employment. It was a political problem, and it remains so, even if there are some important changes from his time.

Today, at least in the United States and other advanced economies, the problem is less often mass unemployment in the Keynesian sense than the quality, security, remuneration, and social meaning of employment. Capitalism may deliver low levels of unemployment while still producing precarious, poorly paid, or socially degrading jobs, thereby reproducing a different form of political instability.

* Stiglitz's Godley-Tobin Lecture is free for download here.

** Capitalism would undermine political stability. On a recent post on Schumpeter (the one in the Substack) I suggested that: "The irony is that Schumpeter thought that markets were efficient and capitalism would collapse, while Keynes thought that markets produced suboptimal results, and that capitalism might survive." I would add, Schumpeter thought that democracy would undermine capitalism, Keynes thought that capitalism would undermined democracy.

What made Keynes, Keynes

A few years back, a paper of mine was rejected in a prestigious heterodox journal, because it failed to grasp the importance of Keynes' sexual diaries. In fact, I had not read them (guilty as charged). My research was outdated, I was told by an angry referee (number 1, as it turns out). Not long after, I was asked to referee, for the same journal, I might add, a paper on Keynes' sexuality and its possible implications for his economic thought. The paper dealt with Keynes' sex diaries from the early twentieth century and suggested that Keynes' sexuality, together with his broader philosophical views, may help explain some of his later economic ideas. The question is interesting, not least because it has often been raised in different contexts and with very different political implications.

A decade ago or so, Niall Ferguson suggested that Keynesian profligacy was connected to Keynes' homosexuality and his alleged lack of concern for future generations. The notion that Keynes' theory was a short run one because he was childless has a long pedigree, associated to other conservative luminaries like Joseph Schumpeter. Same arguments were made by Murray Rothbard, as noted in the paper linked above. Ultimately, the argument is analytically weak, since it tries to move directly from biography to policy conclusions without establishing the relevant links.

The paper I read was sympathetic to Keynes and tried to connect his sexuality to his sensibilities about the economy as a whole, his views about “the good,” his relation to G.E. Moore’s philosophy, and eventually his views on uncertainty, money, and economic life.

Still, the broader problem remains. It is one thing to say that personal experiences, including sexuality, help shape the sensibilities of an author. That is almost certainly true, and in some sense trivial. It is another thing to claim that sexuality explains a particular set of analytical propositions. That is a much more ambitious claim, and it is far harder to sustain. In the case of Keynes, the relevance of the sex diaries for understanding the central analytical ideas of The General Theory (GT) is far from obvious.

There is no doubt that Keynes' philosophical views mattered. His early engagement with Moore, the Bloomsbury milieu, and his rejection of certain Victorian conventions all shaped his conception of life, morality, beauty, friendship, and the good society or the good life. These things may also have influenced his impatience with narrow utilitarianism and with purely mechanical views of economic behavior. But the difficult question is how one moves from those philosophical and personal sensibilities to the concrete analytical propositions that define Keynes' contribution to economics.

The question of exactly what was Keynes' main contribution to economic thought is often vaguely answered, and even within Post Keynesian groups there is considerable disagreement. If the answer is simply uncertainty, as for many in the heterodox camp, then the argument is incomplete. Keynes certainly gave increasing importance to uncertainty, especially in his 1937 response to critics of GT. Chapter 12, with its discussion of long-term expectations, conventions, and the famous beauty contest metaphor, is central to that interpretation. But Keynes’s contribution cannot be reduced to uncertainty.

Moreover, uncertainty alone does not make Keynes distinctive. Frank Knight and Friedrich Hayek also thought uncertainty was central to economic life, yet they reached very different conclusions from Keynes. G.L.S. Shackle, a student of Hayek and an important figure in some Post Keynesian interpretations of Keynes, combined elements of both Keynesian and Hayekian views. This suggests that the recognition of fundamental uncertainty can be grounded in very different theoretical frameworks and can lead to very different policy conclusions. The harder question, then, is not whether Keynes cared about uncertainty, but why uncertainty had the role it did in his broader theory of capitalism.

In my view, the central proposition of the GT is not simply uncertainty in a monetary economy, but the principle of effective demand. Keynes' main analytical break was with Say’s Law and with the idea that investment would automatically adjust to full-employment savings, even if slowly. The point of the GT, as Keynes himself made clear, was first of all a theory of employment. Autonomous spending determines income. Investment does not adjust automatically to full-employment saving. The level of activity can settle below full employment, not as a temporary deviation caused by rigidities, but as a normal outcome of a monetary production economy.

Uncertainty matters in that argument, but it is not central to the argument. It is the uncertainty about autonomous demand that matters. In fact, Keynes’s emphasis on uncertainty only became more explicit as he responded to critics and tried to explain why investment could not be treated as a simple function that smoothly adjusted to the full-employment level of saving, in part as a result of his acceptance of significant elements of marginalist economics. If uncertainty is presented as the core explanation, there is a danger of turning Keynes into an imperfectionist that believed that markets would work well enough if only expectations were less volatile and in the presence of full information. That was not Keynes’s deeper point.

His more radical proposition was that capitalism could be economically stable at less than full employment. It was precisely that economic stability below full employment that made the system politically unstable.

There is also a comparative problem. Michal Kalecki developed a version of the principle of effective demand independently, and arguably before Keynes. Kalecki's intellectual background was very different, shaped by Marx and Marxist authors rather than by Moore and Bloomsbury. This raises the question of how Kalecki's sexuality shaped his theory of effective demand. In that light, the question seems less compelling. That does not mean that biography is irrelevant. But it does suggest that the route from personal life to analytical theory is indirect, mediated by intellectual traditions, political commitments, historical circumstances, and theoretical problems internal to economics.

There is also the issue of Keynes' own intellectual development. Keynes' philosophical views were formed relatively early, if we are to believe Robert Skidelsky, and many other authors on the matter. But his economic views changed considerably over time. The Keynes of the Tract on Monetary Reform, the Treatise on Money, the Macmillan Committee, and The General Theory are not the same. If his basic philosophical and personal sensibilities were already present early on, the questions is  why did the principle of effective demand emerge only later, after the debates with the Cambridge Circus in the early 1930s. These questions cannot be answered simply by appealing to sexuality or early philosophical commitments.

A more plausible position would be that Keynes' sexuality and personal life formed part of a broader rejection of Victorian moral and social conventions. That rejection may have made him more open to questioning established economic doctrines, including the neoclassical faith in adjustment mechanisms, thrift, and the moral virtues of saving. It may also have contributed to his skepticism toward purely ascetic or efficiency-centered views of social life. Keynes did not think economics was an end in itself. He thought economic arrangements should be judged in relation to broader human purposes. In that limited sense, his philosophical and personal world mattered.

But the analytical core of Keynes' economics still has to be explained analytically. His theory of effective demand emerged from concrete debates about saving, investment, money, employment, and the failures of orthodox theory in the context of the Great Depression. His sexuality may help us understand Keynes as a person, and perhaps some of his broader sensibilities. It does not, by itself, explain the logic of the GT.

It is also a peculiar feature of the literature on Keynes' broader philosophical views to portray his motivations in a somewhat simplistic way as being apolitical. He had concerns with the good life, but not the public good. To accept the notion that Keynes was apolitical flies in the face of his extensive participation in the political process, not just as a bureaucrat, but more importantly as a direct participant in political campaigns, involved in the drafting of government program for Lloyd George in the 1929 election, for example.

Ultimately, the more interesting question is not whether sexuality caused Keynesian economics. It did not. The question is whether Keynes' position as an outsider to certain social conventions helped him imagine capitalism differently from the orthodox economists of his time. That seems plausible. Perhaps a good social scientist, a good economist, has to be more than "mathematician, historian, statesman, [and a] philosopher – in some degree," as Keynes suggested. They need to be a bit of an outsider, to see things from an alternative perspective.

Even then, what made Keynes, Keynes was not simply his personal life. It was his ability to transform a set of philosophical, political, and historical concerns into a powerful analytical critique of the self-adjusting market economy.

Crisis of Neoliberalism or Continuity of a Transformed Global Order?

The starting point of my short intervention at the conference on The Economy for Life in Colombia, co-organized by the Progressive International and the government of Colombia, was to problematize the dominant diagnostic. Part of the contemporary discourse, particularly that framed around the idea of an economy for life, tends to sidestep a central issue, that neoliberalism has fundamentally been a regime favorable to capital. In that context, proposing an alternative in terms of “life” is excessively vague. If one aims to build a consistent critique, the focus should shift toward an economy explicitly organized around workers. Welfare, ultimately, is not a moral abstraction but the concrete improvement of the living conditions of the majority, who are, in fact, workers. It should counter the neoliberal narrative for whom workers are only consumers and/or entrepreneurs.

From this perspective, my first point is that neoliberalism is not in crisis, at least not in the strong sense often claimed. The dominant narrative suggests that the neoliberal order is broken, yet there is little solid structural evidence to support that claim. What we observe instead is a significant continuity in its core principles, combined with a capacity to adapt to new circumstances. This is, at most, a transformation within the same regime, not its collapse. In fact, as discussed at the conference, governments of the left have have difficulties in overcoming some institutional limitations imposed by neoliberalism. Neoliberalism is doing what it was supposed to do, creating conditions for the accumulation of capital, and making the lives of workers more difficult. Higher inequality does not reflect its failure, but its success.

The second point concerns the frequent comparison between the current moment and the crisis of the 1970s. This analogy is misleading. The crisis of the 1970s was indeed a crisis of the regulated capitalism of the postwar era, the so-called Keynesian consensus, and it was marked by intense distributive conflict. That conflict rested on two pillars. On the one hand, the bargaining power of organized labor, and on the other, the ability of oil-producing countries, grouped in OPEC, to influence international prices. In addition, the United States was then a net importer of energy. None of these conditions hold today. Workers’ bargaining power is much weaker, OPEC has lost relative influence, and the United States has become a net exporter of energy. In this sense, we are not facing a crisis of neoliberal capitalism, but rather tensions within a capitalism that has already disciplined both the labor force and part of the periphery. But exactly because it succeeded, it created important changes. Which brings the issue of the rise of China.

Third, it is important to address the question of China and the so-called new international order. In some respects, this new order already exists. The rise of China as a global productive center, what might be called China 2.0, is undeniable. This was, in part, the result of the opening of China, first by Nixon in the 1970s, and then by Clinton in the late 1990s, by grating Most Favored Nation status and access to the World Trade Organization (WTO).

However, this shift has not fully extended into the financial sphere. The hegemony of the dollar remains intact, indicating a fundamental continuity in the structure of the system. Moreover, this process is neither recent nor abrupt. It has a long gestation that can be traced back to the opening of China in the 1970s, promoted by US foreign policy, and to the demonetization of gold, that actually reinforced the hegemonic position of the dollar. It is therefore a prolonged transition rather than a rupture, and in monetary matters a great deal of continuity.

In this context, Latin America occupies a position of dual peripheral integration. Even progressive governments in the region have largely been forced to insert themselves into this new configuration. They have integrated commercially with China while remaining subordinate to the financial structure, and ultimately to the military power, of the United States. This significantly constrains their room for policy autonomy.

From the standpoint of economic policy, it is crucial to distinguish between what has worked in practice and what orthodoxy prescribes. The strategies that have shown some effectiveness are not fiscal austerity or strict central bank independence, but rather policies aimed at reducing external vulnerability and promoting domestic economic growth. These include avoiding debt in foreign currency, accumulating international reserves, maintaining a relatively stable nominal exchange rate (in a flexible regime), expanding real minimum wages, and sustaining transfer mechanisms to support the most vulnerable. Even tools such as capital controls have produced mixed and, in some cases, limited results (e.g. Argentina). Industrial policy is central to promote technological development at the national level, and that requires, high levels of public investment.

A problematic aspect of current debates is the optimism surrounding the integration of the so-called Global South. the Global South is NOT a synonym of Prebisch's periphery. There is a tendency to assume that deeper ties with China or other Southern countries automatically provide a path to development. However, there is no reason to assume that China has an intrinsic interest in the development of our economies. What we observe instead are national strategies driven by its own priorities. Any development project, therefore, must be conceived from the periphery and oriented explicitly toward the needs of workers.

At the same time, it is important to challenge certain myths about advanced economies. In particular, the idea that the West, and especially the United States, abandoned industrial policy and have now rediscovered it. This is largely incorrect. In practice, state intervention in strategic sectors has been a constant, even if it is often denied at the level of discourse. In many ways it was free markets for the periphery (or part of it), and industrial policy for the center.

In sum, it is possible to agree with many of the goals present in contemporary debates, particularly the need to improve living conditions, while strongly disagreeing with the dominant diagnosis. We are not facing a crisis of neoliberalism in a strict sense, nor a repetition of the crisis of the 1970s, nor a complete transformation of the global order. South-South integration is no panacea. More importantly, without an adequate diagnosis, alternative proposals risk becoming vague or ineffective. For that reason, it is essential to reintroduce the analysis of distributive conflict and the central role of workers into contemporary political economy, and the role of military power in the understanding of the geopolitics of money.

The New Center-Periphery Relations

A new paper (in Portuguese) by Carlos Medeiros and Esther Majerowicz analyzes the economic relationship between China and Brazil using the center–periphery framework developed by Raúl Prebisch. It argues that, in the 21st century, this relationship reflects a dual process: China’s rise as a new global economic “center” and Brazil’s passive adaptation as a peripheral economy, reinforcing asymmetric development patterns.

A key claim is that China has become central not just because of its size, but because it is now a major source of industrial production and technological innovation, influencing global demand, trade patterns, and commodity prices. Its growth has reshaped the world economy, especially by increasing demand for raw materials and lowering prices of manufactured goods. For Brazil, this has led to a reprimarization of exports. The country increasingly exports commodities (soy, iron ore, oil) to China while importing manufactured goods. This pattern strengthens traditional center–periphery dynamics, despite being framed politically as South–South cooperation. This suggests similar problems as identified by myself and Esteban Pérez in a paper discussing the development strategies in Latin America. The main difference is that in the last decade and a half, the central position of China is more clear, even if the typical notion that American hegemony is over has been exaggerated in American liberal circles.

The authors identify two possible development paths. The dominant one is a business as usual strategy, aligned with Chinese demand and Brazilian agribusiness and mining interests, which deepens dependency. The alternative is a developmental strategy based on diversification, industrial upgrading, and technological cooperation, but this path seems currently unlikely. They also emphasize that Chinese investment in Brazil is concentrated in extractive industries and infrastructure, reinforcing the existing specialization pattern, although there are some emerging opportunities in sectors like renewable energy and digital technologies.

Finally, the paper argues that shifting toward a more balanced relationship would require active state planning, political will, and supportive social coalitions in Brazil. Without these, the current asymmetrical structure is likely to persist or deepen.

Maria da Conceição Tavares and demand-led growth in developing countries

New paper by Franklin Serrano, Miguel Carvalho and Ricardo Summa on Maria da Conceição Tavares (1930-2024) and her contributions to demand-led growth theory. The paper reviews the pioneering contributions of Maria da Conceição Tavares to the theory of demand-led growth, emphasizing her early recognition that effective demand is central not only in the short run but also in the long-run process of capital accumulation. In that respect, it is more focused and detailed in the discussion of economic growth, than my paper (in this book) that tried to put her ideas in the context of the Latin American Structuralist School, and the emergence of heterodoxy in Brazil.

From the 1960s onward, Tavares developed a framework that departed from dominant development economics, which typically treated growth in developing countries as supply-constrained. Instead, she argued that developing economies function like any capitalist system, where output and growth respond to demand.

A key contribution highlighted in the paper is Tavares’s analysis of structural change during import substitution industrialization. She explains how growth regimes can shift from export-led to domestic demand-led as the economy develops a capital goods sector and increases the domestic content of demand. Public investment and industrial policy play a central role in sustaining this transition, reinforcing the idea that growth is driven by expanding demand rather than limited by supply constraints.

The paper also stresses her critique of stagnationist theories. Against views (including Celso Furtado’s work) that predicted long-run stagnation due to structural constraints, Tavares argued that slowdowns are typically the result of insufficient effective demand rather than inherent limits to growth. By distinguishing between capacity and its utilization, she shows that apparent structural problems often reflect cyclical demand deficiencies.

Another central element discussed in the paper is her Kaleckian inspired separation between distribution and accumulation. Tavares argued that income distribution does not mechanically determine growth. Instead, it affects demand conditions but does not impose a necessary trade-off between consumption and investment. Growth depends on autonomous components of demand, and different distributive regimes can sustain accumulation depending on the broader demand structure.

The paper emphasizes her original contribution regarding autonomous demand, particularly capitalist consumption and public expenditure. These components, along with residential investment, are seen as crucial drivers of long-run growth because they sustain demand without directly expanding productive capacity. This insight anticipates later developments in demand-led growth theory, especially the supermultiplier framework.

Finally, and perhaps more importantly, the authors discuss Tavares’s views on investment and financial capital. Drawing on Hilferding, Hobson and Schumpeterian ideas, she incorporates autonomous investment linked to innovation and financial structures. The paper concludes by showing her influence on two strands of contemporary research, one that treats investment as fundamentally autonomous, related to the financialization literature, particularly as developed at Unicamp, where Tavares taught starting in the 1970s, and another, associated to Serrano himself and his co-authors at Tavares's alma mater in Rio, that led to the Sraffian supermultiplier, where investment is entirely induced.