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sanity,
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post-autistic economics review
Issue no. 27, 9 September
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In this
issue:
- G.
C. Harcourt
What would Marx and Keynes
have made of the happenings of
the past 30
years and more?
- Richard
D. Wolff
The Riddle of Consumption
- M. Ben-Yami
Fisheries management:
Hijacked by neoliberal economics
- Deborah
Campbell
Here’s what
economics students in three countries are doing to
put their
professors on the defensive
The
economics of Keynes and its theoretical and political importance: Or, what would Marx and Keynes have made of
the happenings of the past 30 years and more?*
G.C. Harcourt (Jesus College, Cambridge University, UK)
I
I start with
two propositions: first, that Maynard Keynes and Karl Marx, were they still
with us, would have made far more sense of the happenings of modern
capitalism of the past 30 to 40 years than do the more modern approaches to
macroeconomics of the same period; and, secondly, that Keynes would have sat
down and tried again to save capitalism from itself. (Marx may have rubbed his hands and hoped
that its demise, so often predicted by him and his followers, was at last on
hand – but I could not bet on either of these.) It may surprise you that I couple Keynes
and Marx together, but I would argue – the evidence is supplied in a
fine book by Claudio Sardoni (1987) – that,
adjectives apart, when Marx and Keynes examined the same issues in the
capitalist process, they came up with much the same answers. Perhaps, on further reflection, this should
not be surprising, for along with Michal Kalecki and Joseph Schumpeter (said by Joan Robinson to
have been Marx with the adjectives changed), they have made the deepest, most
insightful analyses of the laws of motion of capitalist society in our
profession. (Marx’s views on
socialism are another matter, see Harcourt and Kerr (2001a).)
II
I shall say
more about their analyses below.
First, let me clear out of the way why I think the modern approaches
are less than satisfactory. They
employ either representative agent models, or Frank
Ramsey’s benevolent dictator model, or an emphasis on certain
imperfections in the workings of capitalist institutions, such as are to be
found in New Keynesian models: sticky wages and prices, imperfectly
competitive market structures, asymmetrical information and the like.
Modelling the economy as
a representative agent rules out by assumption one of the fundamental
insights of Keynes (and Marx), to wit, the fallacy of composition, that what
may be true of the individual taken in isolation is not necessarily true of
all individuals taken together. This
implies that when looking at the macroeconomic processes at work in
capitalism, we cannot presume that the whole is but the sum of the
parts. Indeed it is not. We have, therefore, to consider the
macroeconomic foundations of microeconomics as James Crotty,
citing Marx, told us long ago now, see Crotty
(1980), and on which Frank Hahn, innocent of all this, is now working, as has
been Wynne Godley too for many years.
In fact that great and wise Keynesian, Lorie Tarshis,
regarded the use of the representative agent as the greatest heresy of modern
macroeconomics and explained why in Tarshis (1980),
see also Harcourt (1995; 2001a).
As for the
use of Ramsey’s benevolent dictator model, a re-read (or a read for the
first time) of his classic 1928 article, “A mathematical theory of
saving” together with his own scathing assessment of it1,
ought to show how fanciful it is to argue that, in a completely different
setting, it could illuminate what has been happening in actual interrelated
modern economies in recent decades, in fact, any decades. As for the New Keynesians, while it is
possible to applaud many of their policy conclusions and make common cause
with them on them (a plea I first made in 1980 though my paper was not published
until 1996-97, see Harcourt (1996-97; 2001a)), I submit that their policies
do not always follow logically from their theories. By basing their results on imperfections,
they imply that if the latter were not there in the first place, or were to
be removed, all would be well. But as
Marx and then Keynes argued, freely competitive capitalism with power diffused equally
between all individual decision makers and the recipients of such decisions,
especially wage-earners, so that, in effect, no one individual has any power,
still would not work in an optimal manner.
In particular, it would not necessarily provide full employment of
labour and capital either in the short or the long period, so that booms and
depressions, inflations and deflations and in certain circumstances deep
crises, could still be the order of the day.
An especially astute argument for an aspect of this set of arguments
is to be found in Nina Shapiro’s 1997 paper, “Imperfect competition
and Keynes”. She argues,
plausibly (but fairness demands that I refer the reader to Robin Marris’s paper, “Yes, Mrs. Robinson! The
General Theory and imperfect competition”, Marris
(1997), that immediately precedes Nina’s paper in Harcourt and Riach, vol. 1 (1997)), that an economy characterised by
freely competitive market structures would have cycles of greater amplitudes
and higher average levels of unemployment over time than one characterised by
imperfectly competitive market structures.
This insight is shared both by her contemporaries, for example, Paul
Davidson and Jan Kregel and by distinguished
predecessors, for example, Austin Robinson who always lamented the relative
lack of interest by Keynesians in the early post-war years in the systemic
effects of market structures, regional experiences and requirements and the
like, Michal Kalecki,
whose review of The General Theory which alas, though published in
Polish in 1936, was not available in full in English until 1982, see Targetti and Kinder-Hass (1982), forcefully makes this
point in his usual lucid and succinct way, and John Kenneth Galbraith in his
greatest classic, The New Industrial
State, Galbraith (1967). All these economists, together with Marx
and Keynes, were analysing how key decisions made in an environment of
inescapable uncertainty impact on systemic behaviour.
The thrust of Robinson’s,
Galbraith’s and Shapiro’s argument is that anything that reduces
the impact of uncertainty on the decisions on the production, employment and,
most importantly, accumulation of firms (the most fundamental unit of
analysis in Keynes’s macroeconomics, a point emphasised repeatedly by Tarshis, one of Keynes’s most devoted pupils and
disciples, see Harcourt (1995; 2001a)), is likely to result in more
satisfactory and stable systemic behaviour.
Especially is it likely to beget a higher rate of accumulation on
average and so a greater chance of absorbing (offsetting) the level of saving
associated, if not with full employment levels of income, at least with high
levels, certainly higher levels than would occur in a system characterised by
the Marshallian freely competitive structures that
Keynes used for most of the time in his models in The General Theory
itself.
Though the New Keynesians have mounted
vigorous and, to my mind anyway, telling counter-attacks on the new classical
macroeconomics within the latter’s own framework, see, for example,
Hahn and Solow (1995), they have not themselves
completely escaped from the clutches of what Joan Robinson once aptly dubbed
“Pre-Keynesian theory after Keynes”, Joan Robinson (1964). It is true that they have routed the
extreme idea associated with the beginning of the use of the hypothesis of
rational expectations by the new classical macroeconomists that the world may
be analysed as if perfect competition and perfect presight reigned so that the Arrow-Debreu
model could be used as the base on which to erect theory and policy. And it is also true that the rational
expectations hypothesis when it is uncoupled from the Lucas vertical
aggregate supply curve, is just a hypothesis deserving to be tested. Indeed, if it were found not to be
inconsistent with the facts, and if the world is correctly illuminated by
Keynes’s model, coupling them together would serve to reinforce
policies of intervention for then thinking alone could make it so, as it
were. Yet, having cheered all this,
there are still so many remnants of what Keynes dubbed classical economics
present in the New Keynesian approach as to make it logically unacceptable as
the appropriate model or even “vision” for starting an analysis
of the modern world: that is to say, a world in which foreign exchanges have
been floated, sometimes dirtily, often freely, financial markets have been
deregulated, credit has been made “available to all”, capital
controls have been removed in many economies, labour markets have been made
flexible (a euphemism for making the sack effective again by recreating the
reserve army of labour after the full employment years of the long boom as
the Marxists have it or Golden Age of capitalism as the Left Keynesians
dubbed it), international trade has been liberalised at least in some
directions, often at the expense of the South and to the benefit of the
North, and technical advances have reduced the length of the short run in
financial and other markets to hours rather than weeks or months. For it is not obvious that the
equilibrating mechanisms of supply and demand (even if associated with path
dependence) with their underlying theme of harmony, balance and voluntary
choice are universally the appropriate tools to use. So let us reiterate the essential lessons
that Keynes taught us.
III
I briefly
sketch what I have come to believe is the essence of Keynes's new position, as he saw it himself in 1936 and 1937, as he moved from the Tract through A Treatise on Money (1930) to The General Theory (perhaps we should
start from A Treatise on
Probability (1921) and The Economic
Consequences of the Peace (1919).) I do not give chapter and verse for what I
have to say; it is based on my reading over many years of The General Theory and Keynes's other
books, the Collected Writings,
especially volumes XIII, XIV and XXIX, and much secondary literature,
especially in recent years Robert Skidelsky’s
superb three volume biography of Keynes, Skidelsky
(1983, 1992, 2000).
The
essential characteristics of the Marshallian system
as Keynes viewed it was, first, the domination of the long period and
secondly, a strict distinction between the real and the money. In the real system, supposing there to be
free competition, the object of the analysis was to determine long-period
normal equilibrium prices and quantities, using partial equilibrium supply
and demand analysis (but showing in an appendix that the same principles
apply in a general equilibrium system, to wit, that equilibrium prices were,
as we say now, market-clearing). The
analysis was as applicable to the market for commodities as it was for those
for the services of the factors of production. As for the process of accumulation, there
was a supply of real saving, consumption foregone, associated with maximising
expected utility choices between present and future consumption, with the
rate of exchange reflecting time preference at the margin; and a demand for
saving, investment, in which the technical possibilities of transforming
present consumption into future consumption at the margin were the key
concepts. The price which cleared this
market and set the composition of the national income between consumption and
saving/investment was the natural rate of interest, a real concept.
The general
equilibrium version would have as a corollary the Say's Law level of
long-period overall output, itself a 'simple' summation of the individual
quantities of commodities (and employment) associated with the long-period
market-clearing prices of each individual market. So what determined overall employment (and zero, non-voluntary, unemployment) was not an interesting theoretical question, if it were ever
even to be asked: only simple summation was required.
When we come
to the discussion of the determinants of the general price level – so
far only relative prices and
quantities have been discussed, neither money nor money prices played any
significant analytical role – the quantity theory of money tautology could easily be turned into
a theory. For if M was determined by the monetary authorities, V was given by institutions and
historical customs and T was
interpreted as the total of transactions associated with the Say's Law
long-period equilibrium position, P
remained the only unknown. Moreover,
if V and T were given, changing M
would, at least as a long-period tendency, change P in the same proportion.
(Keynes would have expressed all this in terms of the Marshallian/Cambridge version of the quantity theory but
the story is essentially the same.)
Money, therefore, was only a veil in the long period.
The object
of volume II of a Principles of Economics was to set out this basic theory, analyse
the causes of fluctuations around the long-period position (the trade or
business cycle) and design institutions which either allowed the economy to
return as quickly as possible to the equilibrium
position after a shock; or to move as painlessly as possible to a new
equilibrium position if the basic real determinants of it – tastes,
endowments, techniques of production – themselves changed. The essential task of the monetary
authorities was to ensure that the money rate of interest was consistent with
the underlying natural rate of interest which like saving ruled the roost in
the process of accumulation. This, in
the crudest, simplest form, was the system on which Keynes was brought up, as
he came to see it.
Because of
the real/monetary dichotomy,
and because he was writing on money, Keynes felt inhibited about spending
time on the intricate happenings to output and employment in the short period
and over the cycle, "the intricate theory of the economics of the short
period". Nevertheless, in the Tract he recognised them and especially the evils of unemployment as
well as falling prices – hence
he cheeked Marshall about our mortality in the long run – but, analytically, he was looking for
institutions and their behaviour which would give price stability and allow
the economy to settle at its long-period Say's Law position. In A Treatise on Money he presented the famous banana plantation
parable but he was unable analytically to stop the downward spiral of
activity and prices until either the inhabitants had starved to death or
there was an ad hoc change in their
accumulation behaviour (Keynes 1930; 1971, C.W.,
vol. V, 158-60). The endogenous
process and its end had to wait for the publication of Kahn's multiplier
article in 1931 which also contained “Mr. Meade's relation”
– the derivation of the value of the multiplier by concentrating on the
leakage into saving.
Keynes
replaced the old system by a radically new, indeed revolutionary,
system. As a Marshallian
his basic tools were demand and supply functions, now aggregate ones. His emphasis was on the short period in its
own right, suitably adapted for analysis of the economy overall. (This had been the emphasis, too, in Kahn's
dissertation, The Economics of the
Short Period (1929; 1989) though Kahn's analysis was microeconomic.) The dichotomy between the real and the
money disappeared in both the short period and the long period (which Keynes
ultimately ceased to believe to be a coherent concept in macroeconomics). Money and other financial assts and
monetary institutions entered the analysis from the start (institutions were only sketched relatively
to the rich analysis in A Treatise
on Money, a deliberate choice by Keynes).
Aggregate planned expenditures basically drove the system which
operated in an environment of inescapable uncertainty. The latter had inescapable consequences for
vital decisions, especially regarding investment expenditures and the holding
of money and other financial assets and the form that they took. Investment dominated and saving responded
through the consumption function, the relationship between aggregate
disposable income and the distribution of income between the classes on the
one hand, and planned consumption expenditure, on the other, intimately
related to the (income) multiplier through the marginal propensity to
consume. The amount saved (but not the
form in which it was held) was treated as a residual. Investment was determined by expected
profitability, on the one hand, and the money rate of interest, representing
the alternative ways of holding funds (and their availability and cost), on
the other. Subsequently, in 1937,
finance, especially through the banking system and the stock exchange, was
also to play a vital role as, cet. par., the
ultimate constraint on investment expenditure. The money rate of interest therefore ruled
the roost and the expected rate of profit (the mei, the counterpart to the
natural rate of interest in the old system) had to measure up to it. The money rate of interest was depicted as
the price which cleared the money market by equating the demand for money
with its supply, not as the (real) price which equalised desired saving and
investment.
The rest
state in both the short period and the long period (the latter was ultimately
to become for Keynes and his closest followers but economics for economists)
could be associated with involuntary unemployment – people willing to
work in existing conditions but with the level of aggregate demand such as
there not to be sufficient demand for their services. Nor was there any effective way for them to
signal that it would be profitable to employ them; indeed, there would not be
unless there were to be a rise (or an expected rise) in real
expenditures. Up to full employment, the
outcome in the labour market depended on what happened in the commodity
market. The quantity theory was
replaced as an explanation of the general price level by old-fashioned Marshallian short-period competitive pricing, suitably
(or perhaps not) adapted to the economy as a whole. There were therefore at least three 180º
turns between the old and the new: investment dominated saving, the commodity
market dominated the labour market and the money rate of interest dominated
the expected rate of profit. The
forces which would make planned accumulation even on average absorb full
employment saving were unreliable and weak, not to be relied on even as
tendencies. Moreover, the general
price level was determined by factors other than the quantity of money.
IV
The new system
was the base on which Keynes would build his theory of inflation in How to
pay for the War (1940; 1980) and his policy proposals for the
international world order in the postwar
period. In his superb review article,
Vines (2003), of Robert Skidelsky’s third
volume of his biography of Keynes, Skidelsky
(2000), David Vines makes a convincing case for the proposition that Keynes
provided the conceptual basis for modern international macroeconomic
theory. Of course this is not to be
found explicitly in The General Theory itself. That book was mainly concerned with a
closed economy model in order to highlight the central theoretical
propositions and insights of the new theory.
Nor did Keynes analyse the trade cycle or long-term growth issues
systematically in The General Theory and some of his obita dicta asides look rather strange now.
For most of The
General Theory Keynes was content to discuss existence and stability
propositions in the short period, focussing especially on the factors that
were responsible for the point of effective demand at which aggregate demand
and aggregate supply, and planned investment and planned saving (more
generally, injections into and leakages from the
expenditure-production-income circuit) were equalised. (He said later that if he were to write the
book again he would have been more careful to separate out the fundamental
factors responsible for the existence of the point of effective demand from
the other set responsible for stability and reaching the point through a groping
process by business people. He thought
that Ralph Hawtrey had confused the two, see
Keynes, C.W., XIV, 27, 181-82.)
In his most
stark model, one designed not so much to describe the world as is, as to
bring out most simply what was at stake, he assumed, as Jan Kregel (1976) has told us, that short-term expectations
concerning immediate prices, sales, costs et al., were always realised
and were independent of long-term expectations concerning their future
courses, the ingredients most relevant for investment decisions, so that
planned investment could provisionally be taken as a given and the point of
effective demand established immediately.
In his most sophisticated model of (the same) reality, the independence
of the two sets of expectations was scrapped, the point of effective demand
was not realised immediately and indeed it changed over “time” as
the model of shifting equilibrium came into play. This last apparatus is in rudimentary form
the starting point for the development of growth theory by Richard Kahn and
Joan Robinson, Nicky Kaldor and Luigi Pasinetti and the models of cyclical growth by Kalecki (independently) and Richard Goodwin.
V
Both Marx
and Keynes recognised that when financial capital was not moving in tandem
with industrial and commercial capital (Marx would and Keynes would not have
put it this way), malfunctioning and sometimes crises were likely to
occur. Keynes set out his ideas on
this in, for example, the key chapter 12 of The General Theory on the
operation and non-operation of the stock exchange and its relationship to
real accumulation and activity generally.
Another key step was in his 1937 paper on the finance motive, see
Keynes, C.W., vol. XIV, 201-23, on
how the banking system in particular holds the key to the realisation of
investment plans, taking as given the state of long-term expectations. The stock exchange also has a key role
because the repayment of the bank loans used to finance the setting up of
investment projects, the start of the process of accumulation, depends upon
the firms concerned being able subsequently to place new issues of shares and
debentures at satisfactory prices.
(The demand for the new issues comes, in part at least, from the
placement of the new saving created by the new investment.) The point is that finance and saving are
sharply separated by their roles and place – timing – in the
process of accumulation.
These ideas
were subsequently developed by Hyman Minsky in
particular, writing under the rubric of his financial instability hypothesis. Minsky spelt out
ideas, perhaps more implicit in Keynes’s and Dennis Robertson’s
writings, that the natural, probably inescapable, cyclical movements on the
real side of the economy can be enhanced both upwards and downwards by events
in the financial aspects of the economic process, resulting in the greater
amplitudes of the actual cycles experienced by economies. Minsky stressed
the feedbacks associated with the disparities between expected cash flows and
actual or realised cash flows in the accumulation/production process, on how
non-realisation acts on confidence and expectations, enlargening
the boom, at least in its early stages, accelerating the downturn and
deepening and prolonging the subsequent recession or depression.2
VI
As well as pointing
out the implications of disparities in the progress of finance capital in
relation to commercial and industrial capital, Marx’s analysis of the
inherent contradictions in capitalism are of immediate relevance for our
purposes in this paper. Unlike Keynes
and, to a lesser extent, Kalecki, Marx made a clear
distinction between happenings in the sphere of production, on the one hand,
and happenings in the sphere of distribution and exchange, on the other. As far as the possibility of and limits to
accumulation are concerned, it is conditions in the sphere of production
– the length and intensity of the working day, the state of the class
war between capital and labour, employer and employee – that ultimately
determine the size of the potential surplus created for the realisation of
profits and for future accumulation.
Whether this potential is realised or not, though, depends upon
happenings in the other sphere of distribution and exchange. It is here that Keynes, Kalecki
and developments based on their contributions come into play: the combination
of the theories of investment and of the distribution of income determined by
the expanded version of the theory of effective demand decides how much of
the potential surplus is realised in actual profits and accumulation, see,
for example, Harris (1975; 1978).
These ideas
help to explain one of the paradoxes of recent decades. Monetarism has rightly been called by the
late Thomas Balogh (1982) “the incomes policy
of Karl Marx”. Ostensibly, the
theory was meant to justify policies designed to rid the system of
inflationary tendencies. In fact, it
was associated with the attempt to swing the balance of economic, social and
political power back from labour to capital.
(The reverse swing had occurred cumulatively in many advanced
capitalist economies during the years of the long boom.) The means to this end was the recreation of
the reserve army of labour, so making the sack an effective weapon again and
creating cowed and quiescent workforces and greater potential surpluses for
national and, increasingly, international capital accumulation.
What was not
realised was that the emergence of heavy and sustained unemployment,
initially ostensibly to push short-run rates of unemployment above so-called
natural rates and then let them converge on natural rates where inflation
could be sustained at steady rates and accelerating rates of inflation would
be things of the past, would simultaneously have such an adverse effect on
what Keynes called the “animal spirits” of business people, the
ultimate determinants of rates of accumulation. Hence we have had decades in many economies
in which inflation has been drastically reduced yet accumulation has been
sluggish, certainly well below the levels needed to offset full employment
saving and the levels achieved during the years of the long boom itself. In those countries where this had not
occurred, despised Keynesian policies have continued to be used, sometimes
unintelligent ones such as those implemented, for example, during the last
six years of Ronald Reagan’s Presidency in the USA and now by President
Bush the Second.
Since
attaining full employment by the use of fiscal policies was no longer on the
agenda in the former countries and monetary policies were mainly directed at
general price levels and exchange rates, contractionary
forces were widely prevalent in these countries, as the politicians and their
advisors waited (or said they were) in vain while the impersonal forces of
competitive markets allied with monetarist rules allowed the economies to
seek and find their natural rates.
VII
I think it
is fair to say that Keynes never completely threw off the vision of the
working of economies in terms of an equilibrium framework. He did, of course, argue that government
intervention was needed to help attain a satisfactory full employment
equilibrium (internal balance) in each economy – left alone, less
satisfactory equilibria or rest states would
emerge. This was an essential step
towards equilibrium associated with external balance in the international
system and the possibility then to take advantage of the classical principles
of free trade on which he had been brought up. (Skidelsky (1992,
xv) called him “the last of the great English
liberals”.) The proposals he put
forward at Bretton Woods were designed to provide
the institutions and the orders of magnitude of, for example, the provision
of liquidity that would make all this possible. That the Americans, principally thorough
Harry Dexter White, won out on both the institutions and the orders of
magnitude adopted for the post-war period was a tragedy; for this ensured
that the Bretton Woods system contained within it
the seeds of its own eventual destruction from its very inception. (How Marx would have laughed!)
One of the
major changes in vision since Keynes’s death about how markets,
economies, even whole systems work, associated with Keynes’s followers,
especially Kaldor and Joan Robinson, is the concept
of cumulative causation. The concept
has its origins in Adam Smith (what has not?) and was brought into prominence
in the modern era by Allyn Young, Kaldor’s teacher at the LSE, and subsequently
championed by Kaldor and independently by Gunar Myrdal, especially in
their post-war writings. The way I
illustrate the essential idea of the concept for my students is through the
analogy of a wolf pack (I am not a zoologist so I may be completely wrong
about how wolves behave; but as I am an economist, at least I think
so, let us assume I am right). There
are two major views on the workings of markets, economies, whole
systems. The dominant one is that akin
to a wolf pack running along. If one
or more wolves get ahead or fall behind, powerful forces come into play which
return them to the pack. (The
parallels with the existence of an equilibrium that is stable, and that the
forces responsible for existence are independent of those responsible for
stability are, I hope, obvious.) The
other view has the forces acting on the wolves who get ahead or fall behind make
them get further and further ahead or fall further and further behind, at
least for long periods of time. This
view captures the notion of virtuous or vile processes of cumulative
causation. My contention is that,
according to which view is “correct”, makes a drastic difference
to our understanding of the world and how specific policies may be perceived,
recommended and evaluated.
I illustrate
with an example, the case for freely floating exchange rates. A classic paper arguing for them is by
Milton Friedman (1953). Underlying his
argument is the first wolf pack analogy, that in a competitive setting there
exists a set of long-period stable equilibrium exchange rates that quickly
would be found and then kept by a free float.
Moreover, in this setting the systemic effects of speculation would be
beneficial, for speculators with their superior knowledge, intelligence and
information would help the system to reach the equilibrium pattern more
quickly than in their absence and then sustain it there.
But suppose
that the second wolf pack analogy is the correct or at least more correct
description of how foreign exchange markets work. Then there is no set of stable equilibrium
exchange rates “out there” waiting to be found and now a float
combined with speculative activity will be systemically harmful, accelerating
the movements away in both directions of exchange rates from one another and
also of systems, at least for long periods of time. I submit that the second scenario is more
akin to what has happened over much of recent decades, and provides a
rationale for various schemes suggested to curb the action of
speculators. (My own suggestions may
be found in Harcourt (1994; 1995; 2001b).
I had generalised the Tobin tax proposal without, I must confess, being
aware at the time of its existence!)
It is not
only in markets characterised by cumulative causation processes that
speculation may be systemically harmful.
Any market in which stocks dominate flows and expectations about the
behaviour of other participants in the market dominate the more usual
economic factors – preferences, cost of production – in the
setting of prices may experience periods when speculation is harmful. (The seminal and classic paper on this is Kaldor (1939).) An
obvious example is the stock exchange.
On this we may recall Keynes’s famous description in Chapter 12
of The General Theory of what may happen when “enterprise
becomes a bubble on a whirlpool of speculation”, Keynes (1936; C.W., vol. VII, 1973, 159).
VIII
Let me close
with another example of how Keynes and Keynesian/Kaleckian/Marxian
ideas are still relevant for both our understanding and policy making. The ideas I present now are based on Kalecki’s famous 1943 paper, “Political
aspects of full employment” and the writings of my two greatest
Australian mentors, the late Eric Russell and the late Wilfred Salter, both
devoted Keynesians, see Harcourt (1997; 2001b) for the arguments and
references.
Kalecki set out graphically the vital difference between
the political economy of getting to full employment after a deep slump, when
all classes are in favour of this, the wage-earners in order to get jobs,
business people in order to receive higher profits, the government in order
to reduce the risk of serious social unrest, on the one hand, and the
political economy of sustaining full employment, on the other hand. In the second situation, as I argued above,
cumulatively economic, social and political power shifts from capital to
labour. The capitalist class, indeed
conservative elements generally, get more and more uneasy about the emerging
situation. An environment is created
in which, for example, monetarist ideas will be well received, and more than
one economist will be prepared to be a hired prize fighter in support of them
as government (and central bank) actions.
Is there a
possible answer to this, on the face of it, inescapable dilemma in our sorts
of economies? Keynes and his followers
recognized that attaining and then maintaining full employment would carry
with it cumulatively rising risks of inflationary pressures associated with
rising money-wage demands. It is no
accident that Joan Robinson always said that from 1936 on, “Incomes
Policy” was her middle name, a perceptive insight no doubt reinforced
by having an actual middle name of Violet.
Russell and Salter recognized this dilemma and argued in Australia for
a full employment policy that included an incomes policy implemented through
our centralised wage fixing body (then the Australian Arbitration Commission). In broad outline, at a starting point,
money incomes were to be adjusted periodically for changes in prices and in overall
productivity. Not only is this
adjustment equitable, it is also efficient.
It is
equitable because at the level of the economy as a whole, capital and labour
are complements and the impact of their combined activity on overall
productivity ought to be reflected in changes in the real incomes of
all citizens. It is efficient because
with full employment, such an overall policy discourages low productivity,
often declining industries whose time has passed and encourages high
productivity, often expanding industries whose time has come. The result is a regime with higher
increases in overall productivity than would occur otherwise, certainly than
would occur in a regime characterised by so-called flexible markets, such as
are the UK’s and the USA’s pride and joy. There would be therefore an agreeable quid
pro quo for money income restraint in the form of rising real incomes, so
providing a possible solution to Kalecki’s
dilemma. There are, of course, all
sorts of qualifications and modifications and exceptions to the starting rule
– I discuss these in the article referred to above. Here I wanted to set out the core argument
as starkly as possible.
IX
In conclusion, may I say
that Keynes and his ideas are still alive and well; that subsequent
developments by others complement agreeably his own revolutionary
contributions; and that people of good will who wish to see established just
and equitable societies world-wide have in these ideas an essential starting
point?
End Notes
* A lecture given at the conference on “Keynes and after”,
held at the Faculty of Economics and Business Administration, University of
Iceland, Reykjavik, on 10 October 2003.
1.
In a letter to Keynes (28.6.1928) when he submitted the article to the Economic
Journal, he wrote: “Of course the whole thing is a waste of
time”. It had distracted him
from “a book on logic … [because] it [was] much easier to concentrate
on than philosophy and the difficulties that arise rather [obsessed
him]”
2. For some policy implications of Minsky’s insights, see Harcourt (2001a), ch. 15.
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______________________________
SUGGESTED CITATION:
G. C. Harcourt, “The
economics of Keynes and its theoretical and political importance: Or, what
would Marx and Keynes have made of the happenings of the past 30 years and
more?”, post-autistic
economics review, issue no. 27, 9 September 2004,
article 1, http://www.btinternet.com/~pae_news/review/issue27.htm
The Riddle of Consumption
Richard D. Wolff
(University of Massachusetts,
Amherst, USA)
Shaun Hargreaves Heap recently reminded us (PAER
no. 26, 2 August 2004) that The Affluent Society raises an issue as
important today as when Galbraith wrote nearly fifty years ago. Why do
consumers want ever more goods and services when the evidence suggests that
more consumption delivers no greater happiness? Heap praises, discusses, and
adds to Galbraith’s explanations for this riddle of consumption or what
might better be called the fetishism of consumption. However, neither
Galbraith nor Heap recognize, let alone discuss, one solution to the riddle
derived from Marx’s theory of exploitation. Indeed, capitalist
exploitation helps to explain not only the fetishization
of consumption, but also neoclassical theory’s parallel need to ascribe
disutility to labor and a compensatory utility to
consumption.
Galbraith
and Heap are troubled deeply by the spectacle of endlessly rising consumption
spending, by the acquisitive value system it reflects and reinforces, and by
the negative social effects flowing from both ever-rising consumption and
that value system. The fetishization of consumption
strikes them as a serious social problem. It undercuts the happiness of
consumers, threatens the environment, and increasingly dominates public
services and especially education which they believe could and should be
sources of different, preferable value systems. Galbraith and Heap explain
ever-rising consumption as the effect mostly of qualities they believe to be
intrinsic to modern individuals. For example, people derive utility from
consumer goods in terms of their relative – not their absolute – consumption.
As others’ consumption grows, so too must theirs, thereby generating an
endless rise of consumption. Similarly, people are vulnerable to advertising
and mass media that generate ever new desires and tastes. Today’s
desires reflect yesterday’s circumstances of the past; because former
generations scrambled for subsistence, people keep buying long after
subsistence is no longer an issue. The conventional wisdom that more consumer
goods and services is always better than fewer endures, notwithstanding all
the contrary evidence, because belief in conventional wisdoms is a human
predilection. Extending Galbraith’s psychological explanations, Heap
stresses modern identity insecurity. Because their personal identities are
now fluid and hence insecure, people turn to consumption as the means to
define and refine individual identities.
Galbraith
and Heap do cite one cause for endless increase in consumption that is not a
matter of individual psychology. Because rising consumption keeps the masses
employed, it brings ever more people out of absolute poverty. This secures
“social harmony” by “mitigating” the social tensions
bred by “social inequality.” While both Galbraith and Heap are
vague on this point, it does represent the germ of a social (dare one say
“objective”) rather than personal, psychological (dare one say “subjective”)
theory to explain ever-rising consumption. However, why settle for a germ
when a much more developed and nuanced social theory of rising consumption is
available from classical political economy and especially from Marx?
John
Locke argued that post-feudal European society could work well, despite the
loss of social controls operated by absolutist feudal hierarchies, if each
worker disposed of only as much land as that worker could farm. He, Thomas
Jefferson, and others believed that social inequalities bred social tensions
which risked degeneration into civil chaos or regression back to feudal
absolutism. The tensions could be avoided if production exhibited a rough
equality of labor, means of labor,
and hence reward from labor across individuals.
However, the actually existing capitalism that came increasingly to prevail
in post-feudal Europe generated growing inequality (Adam Smith’s
accumulation of land and stock). Capitalism thus risked social catastrophe
and self-destruction unless it could somehow “mitigate” the
rising inequality between, speaking broadly, capital and labor.
Smith’s idea was that capitalism might mitigate deepening inequality by
raising consumption. Put bluntly, workers falling ever further behind and
below capitalists in terms of wealth, income, power, and culture, might
accept that if they enjoyed an ever-rising level of personal consumption. For
generations of capitalism’s champions, it thus became axiomatic that a
secure capitalism is one that delivers a rising standard of consumption to
its working classes. Crises threaten not because rising inequality attends
capitalist development, but only when that inequality is not compensated by
rising worker consumption.
Marx’s
theory of capitalist exploitation developed Smith’s idea further and in
new directions. In the theory of relative
surplus value presented in Capital vol.1, Marx showed how
competition among capitalist firms within each industry typically generated a
secular fall in the value per unit of each industry’s output. That
meant, in Marx’s mathematical model, that the value of labor power would fall since each item in the
worker’s consumption bundle contained less value. Assuming workers labored the same number of hours and thereby produced the
same value added, the fall in the value of their labor
power left a greater mass and rate of surplus value for their capitalist
employers. In short, more of the value added by laborers
accrued as surplus to their employers as less was returned to them as wages;
the exploitation of labor rose. The real wages of
workers remained the same because the reduced value of their wages matched
the reduced value per unit of the consumer goods they purchased. Marx
concluded that capitalism thus displayed a remarkable self-reinforcing
mechanism: each capitalist’s need for more surplus generated a
competition that provided it for all capitalists.
Marx
recognized, however, that this happy circumstance for capitalists required that
workers accept a rising rate of exploitation and its consequences: rising
social disparities between workers’ and capitalists’ wealth,
income, power, and culture. If, as Marx no doubt hoped, workers resented
exploitation per se and its increase still more, the old problem of
inequality generating social conflict could resurface with a vengeance.
Marx’s argument implies the two parts that a solution to this
capitalist problem would require. First, the value of labor
power should not fall as much as the unit values of consumer commodities
fell, thereby enabling a rise in real wages. So long as the value of labor power falls, the mass and rate of surplus value
rises to the benefit of all capitalists. Exploitation can thus increase while
workers also enjoy a rising standard of consumption. However, this part of
the solution is not, by itself, sufficient. Rising exploitation still entails
the same set of deepening inequalities that worried the classicals.
Thus the need for the second part of the solution: workers must care much
more about their own level of consumption than about exploitation, rising
exploitation, and deepening social inequality.
Modern
capitalism, in those areas where it is the most secure, reflects the
successful combination of both parts of this solution. Exploitation rises to
the benefit of capitalists, while real wages also rise and workers focus on
rising consumption as the point and purpose of their work. They measure the
tolerability of their labor by the adequacy of its
compensation in terms of consumption. At a minimum, workers accept
exploitation and its social consequences because they are compensated by
consumption. Better still, for capitalism’s survival, workers may come
to believe that exploitation does not (or no longer) exist, so that
consumption can be viewed as the compensation simply for labor
activity itself.
For
successful modern capitalisms, then, real wages must rise tendentially
and workers must be ceaselessly reinforced to believe that rising consumption
is the adequate, appropriate reward for their productive efforts. In
contrast, unsuccessful capitalisms are those who do not deliver rising
consumption or who cannot persuade their workers that rising consumption is
all that should matter in relation to their work. In this persuasion, neo-classical economic
theory plays a central role. It teaches that work necessarily entails an
intrinsic disutility compared to consumption which is an intrinsic utility.
Work’s intrinsic disutility flows from exertions of mind and muscle (as
opposed to “leisure”). Each worker rationally balances, at the
margin, the disutility of those exertions against the utility of the
consumption enabled by the worker’s income (revenue from those
exertions). Rationality for workers is defined so as to exclude any thought
or action in regard to exploitation and its social effects. Indeed,
neoclassical economics teaches, contra Marx, that exploitation does not (or
no longer) exist; there is no surplus in production. To the extent that
neoclassical economics informs journalists, politicians, school-teachers,
ministers and others, it organizes the persuasion needed to secure
capitalism’s rising rates of exploitation and the social inequalities
thereby deepened.
Marx
thus offers a different explanation for the seemingly endless rise in
consumption from those discussed by Galbraith and Heap. They profess to be
mystified as to why people demand more consumption even though it does not
make them “happier” and they resort to rather simplistic psychological
explanations for that demand. In contrast, Marx’s theory of relative
surplus value explains why rising real wages are possible, why they can occur
as a consequence of capitalist competition, and why, in successful
capitalisms, they are accompanied by a consciousness that ever more
consumption is better. For Marx, it is a matter less of intrinsic human
psychology than of an attempt to manage the deepening inequalities of
capitalism.
Such
management would fail if workers recognized exploitation and its social effects
and refused to accept personal consumption as adequate compensation for them.
It would fail if workers reacted to the disutility of their labor by demanding that the quality of their labor activity be changed by ending exploitation (rather
than or in addition to demanding that their consumption be increased). It
would fail if workers stopped believing that more consumption is better and
focused instead on changing the social conditions of consumption by, among
other measures, eradicating exploitation.
This
analysis of rising consumption as a means of managing the social effects of
rising exploitation implies a Marxist critique of both environmentalism and
of socialist politics focused on raising workers’ wages. On the one
hand, environmentalism effectively questions rising consumption by stressing
its disutilities.
However, in so far as that recognition remains disconnected from Marx’s
larger argument about exploitation and rising consumption,
environmentalism’s impact will be constrained and undermined. One the
one hand, socialists’ focus on raising wages and consumption standards
mobilizes workers around immediate needs. However, in so far as that focus
subordinates or disconnects from Marx’s central opposition to
exploitation within production, socialists risk becoming inadvertent adjuncts
to capitalism’s successful management of rising exploitation and its
social effects.
______________________________
SUGGESTED CITATION:
Richard D. Wolff, “The Riddle of Consumption”, post-autistic
economics review, issue no. 27, 9 September 2004,
article 2, http://www.btinternet.com/~pae_news/review/issue27.htm
Fisheries management: Hijacked by neoliberal economics*
M.
Ben-Yami (Israel)
This is a story about a fashionable political-economic ideology that
has taken over the management of many fisheries. It happened as a
matter-of-fact offshoot, sort of by-catch, of the neoliberal
or neoclassical paradigm.
In the beginning fish were
aplenty and there were no rules upon the face of the deep, and the spirit of
free access moved upon the waters. And the fishermen saw that it was good and
fished as many fishes as they needed to feed their families and their neighbors.
But people were multiplying and replenishing the earth, and more and
more fishermen had to catch more and more fish to meet the demand of the
ever-growing humanity.
And governments said: let there be management, so that there would
always be enough fish left in the seas to procreate. And they limited the gear, the
vessels’ size and numbers, the duration of fishing seasons, and the
access to some fishing areas, and they called it input or effort regulation.
But, the fishermen kept fishing and their fleets kept growing, and the
governments saw that it was bad. So the governments made the licenses, and
their scientists thought up the “maximum sustainable yield” (MSY), which was the amount of fish that could be safely
extracted, and they made the “total allowable catch” (TAC) for each sort of fish in the sea. But the fishermen
kept competing, and over-capitalizing, and the fish became scarce.
And the economists said unto the governments: let there be property
rights. And they spawned “individual transferable quotas” (ITQs), which were rights to catch the given quota of fish
that the fishermen could buy from each other. And they believed that it is
good and said unto the fishermen: Behold, rights’ privatization is your
salvation. And the governments sent the ITQs upon waters
to replenish the seas and subdue all fisheries. And it was good.
This is more or
less the gospel, which prevails throughout fisheries administrations in many
countries. It made some people richer
and so they became its devoted believers and supporters, while the many made
poorer, or afraid to become so - its adamant opponents. And in almost every
single case the consequence is continuing concentration of fishing rights in
fewer and fewer hands, often enough in the hands of major corporate interests,
at the expense of small-scale, family, and skipper-owned fishing operations
of one or two small or even medium-sized fishing vessels.
Fisheries management
is supposed to look after the health of the fish resources exploited by fishermen.
This requires knowledge of fishery biology and ecology, population dynamics,
and historical data of the fishery and of environmental and associated stock
fluctuations in its area. As fisheries management can only manage people, it
entails negotiations, legislation, technology, and enforcement. There's a
whole catalogue of management systems and technical and administrative
methods that managers can use to try to achieve their targets.
Traditional management replaced. Old-type management by tribal and community
leaders and local fisherfolk’s organizations
based on traditional knowledge of the resource and traditional justice, is
now almost totally extinct. It has been replaced throughout most of the world
by bureaucratic and technocratic mechanisms heavily influenced by political
and economic considerations that, while interested in fish as marketable
merchandise and a source of profits to the operators, have only little to do
with safeguarding the resource as a source of income to fishing people.
Fisheries management has thus become a power play over benefits from the
resource. Stakeholders are many, starting with fishing people and local
interests in fishing communities, through recreational fishermen,
environmental lobbies and coastal development interests, and ending with
powerful corporations and market forces, whether local, national, or
multinational.
The political attitude of the powers in
charge determines the choice of the management system and how it is applied
through licensing that controls fishing capacity, quotas allocation, or
limits set on effort. The system chosen determines the distribution of the
benefits derived from the resource to the different stakeholders. For
example, allocating fishing rights (and hence benefits) to a large number of
small-scale fishermen would call for different management methods than
allocating them to a large company.
Neoliberal economics invaded management of various commons and
national resources as an extension of a dominant paradigm - though very much at issue - in the industrialized world. Its gospel is
being spread over the world and its political, financial, and academic
institutions by troops of disciplined economists, rewarded for devotion, and
punished for dissent. So, what is this neoliberal or
neoclassical teaching in economics that has also impinged on fisheries? And
on what basis are its devoted adherents preaching that theirs is the only way
society can take to utilize its fish resources in a feasible and efficient
manner?
The old “classical” economic
teaching has introduced the belief in the “invisible hand”
guiding rational individual decisions driven by self-interest eventually into
an optimum economy, in which free market forces are taking care of all
aspects of peoples’ life. An
implied outcome of such “free play” is that any financial profit
derived from a common, fully, partly, or quasi-privatized resource, would
somehow trickle down and redistribute itself all over the society. But this
is a myth and a fallacious contention, if not an outright lie. It is common
knowledge that, in most of the world’s countries, a big share of such
benefits indeed trickles down, but to various investments abroad, and to
imported luxury products and services. The “trickle down” theory
can approach the real situation only in a few rich countries, where profits
feel secure and investments promise further accumulation of capital.
Criticism. Recently, more and more economists and
other social scientists started casting doubt on the neoclassical gospel, nicknamed
by some “autistic economics”.
Awarding the 2002 Nobel Price in economics to two professors, one of
them a psychologist, who refuted the theory that, as a rule, individuals
make rational economic decisions, reflected this growing criticism. Economic
determinism inherent in the neoliberal theory
doesn’t work; the markets’ reaction to prices, the prices’
reaction to the dynamics of supply and demand, and peoples’ reactions
and economical activities don’t fit that theory’s assumptions.
Hence, its weakness in economic analysis and forecasting.
Some economists and other social scientists
argue that, contrary to its pretense to scientific,
objective approach, neoclassical economics is in fact a social-political
narrative and a methodology used by global economic and political interests
to concentrate power in the hands of corporate national and multi-national
institutions. Thus, individual businessmen and small and medium-scale private
enterprises, not to speak of wage earners, are losing their influence on
socio-economic decision-making to powerful commercial-industrial centres and
their collaborators in governments.
This transfer of power is promoted,
legislated, and executed through democratic processes occurring within the
existing legal framework with the help of well financed journalistic and
media campaigns and more or less biased scientific publications, with Thus, the “invisible hand” has
been transformed from the sum of the multitude of individual decisions into
the sum of the political and economic decisions of powerful interests.
Profit maximization. Neoclassical economics are supposed to aim at and
produce maximization of social and national benefits, which in fact are dollar equivalent measures of how economists
value goods and services (including non-market goods and services). It
preaches maximization
of profits or rents often attained at the expense of heavy social costs. The big question is how these costs and benefits
are defined and calculated; since social costs are very
difficult to estimate, any portrayal of economics as an absolute, scientific
methodology is simply fallacious, and honest economists admit that they cannot
adequately calculate all social benefits and all social costs.
It
is obvious that losses incurred through forfeiture of alternative actions,
and due to various social, and other external costs, many of which cannot be
evaluated in terms of dollars and cents are a part and parcel of any economy.
As long as we are
not taking into account all the costs and benefits resulting from production
and market fluctuations, various management steps, defaults to act, social,
economic, and cultural dislocations of people and their ramifications
affecting coastal communities, as well as other "externalities"
difficult to express in monetary terms, we are unable to calculate true net
social costs and benefits.
Social benefits. Many people associate the term "social
benefits” with how benefits derived from national resources are
distributed across the society. They ask, for example, how many people make a
living from a certain resource. A “less efficient” small-scale
fishery that employs many more people than an “efficient”
big-owner fleet, may feed less monies to the "national purse", but
as a rule is directly and effectively more beneficial to people and their
communities. Only an in-depth analysis can establish which option would
produce truer national benefit values. Thus, it is
quite consequential who defines national and social benefits, and how.
For example, calculation of net national
benefits for an industrial shrimp fishery in a non-industrial country must
include a deduction of the costs of all imports, such as expatriate manpower,
fuel and lubricants, vessels, deck and propulsion machinery, processing and
refrigeration equipment, and fishing gear, as well as insurance and
maintenance costs incurred in foreign-currency. In some cases, the only net
benefits from an industrial shrimp fishery in such countries are the revenues
from license fees and the employment of nationals, while a major share of the
proceeds for the shrimp exported is going abroad, along with the product.
Policy costs. Therefore, responsible resource managers
along with responsible economists must openly account also for the values
that are non-financial/commercial, and the diverse peripheral socio-economic,
political and cultural costs, as well as the taxpayer's money needed for
dealing with human problems resulting from management decisions. Only then
would the society and its governments be informed of the true costs of
any policy proposition leading to allocating their natural resources into the
hands of a few. Nowadays, such transfers are facilitated by
governments’ obsession with privatization as a panacea to all maladies
of the economy.
The
neo-liberal gospel preaches that practically nothing can work efficiently, if
it is not somebody’s private or corporate property. The massive
ideological privatization practiced in some countries has embraced also such
natural resources, as water, forests, various energy sources, and public
transport. Even economically viable, and efficiently run national resources
are often falling victim to the privatization Moloch.
How wrong this ideology can be has been recently well illustrated by a whole
series of flops of some mammoth privatized and corporate companies, due to both,
mismanagement and corruption, as well as by the rather disappointing results
of the privatization of the British railway system. “Swissair”,
“PanAm”, “Enron”, and other
recent bankrupt giants have not been run by governments.
One consequence
of the domination of neoclassical economics is the rather obscure struggle
between free enterprise and corporate interests. In the
past, the conception of capitalism
Sometime ago, after the
demise of the Soviet system, one would think that free enterprise had won.
One is not so sure nowadays. Like the Soviet monopolistic concerns, some of
the giant companies of the "capitalist" world are run by
exploitative bureaucracies supported by ideological economists, who seem to
consider small and family-owned enterprises a noise and a nuisance in their
concept of "economically efficient" world.
Invasion. The invasion of
fisheries by the neoclassical economics has been a logical consequence to its
domination of the global, and many national economies. Like many historical
invasions, it was partly invited from inside the fisheries and given a
friendly reception by large-scale interests and their proxies in the
management mechanisms. Once in, it seems to be here to stay, especially in
all those countries where, for various reasons, it is not met with strong
opposition.
What brought this ideology into
the fisheries is its claim that privatization is the most efficient, if not
the only mode of exploiting a resource. This, even if the resource belongs to
the whole nation, as is the case with water, forests and, for that matter,
fish in the sea.
Input control. When, following the Second World War, the spiraling
growth of fisheries brought about the need for management, it was initially
based on, so called, “input control”. This implies regulation of
fishing effort through such means as limited access, fishing time and areas,
as well as other regulations that try to follow biological characteristics of
the species involved. In some countries this management system still works
well enough, in others it has been deemed, rightly or wrongly, inadequate.
Fish population dynamics models have been used to estimate the biomass of
fish populations and, consequently, the fixing of TACs.
In some fisheries this led to highly competitive “gold rush”
fishing operations and investment in excessively strong and fast vessels. The
next step was dividing the TAC into quotas that
were allocated to vessels, usually, according to their fishing history. And
this was the moment when the neo-liberal economists stepped in with a new
pattern: marketable fishing quotas (ITQ).
Property rights.
They axiomatically promoted a theory that property rights and maximum benefit
and efficiency spelled out in financial terms are a must for rational
exploitation of fish resources. Since property rights are characterized by (i) security, or quality of title; (ii) exclusivity; (iii)
permanence, and (iv) transferability, their application in fisheries boils
down to ITQs. Thus, mere "fishing rights"
have become "private property rights”.
But trade
in fishing rights eventually must hit the weaker stakeholder. Initially, the
richer vessel owners or their covert sponsors accumulate quotas by buying off
the weakest boat owners. Governments enhance the process by allocating individual quotas too small
to pay a single vessel owner’s way out of the red, on one hand, and by
pricing licenses and quota entitlements above the value of his/her fishing
boat and gear, on the other. A quota gone from a fishing community is gone
forever, together with all the associated jobs, services, and income. If it were not for social opposition, a
worldwide adoption of ITQs would have proceeded
faster.
Concentration. Since
marketable quota systems favour the financially stronger, they invariably lead
to a gradual displacement of small-scale individual or family-owned fishing
enterprises, and sooner or later to the concentration of fishing rights in
the hands of a few, either specialized fishing companies, or large holding
corporations for whom fishing may be only one branch of a multifarious
business. Such concentration eventually would occur even where there are
legislative attempts at stipulating acquisition of quota by some maximum
values. Hence, there is a growing concern of "privatization by stealth".
It is incredible that managers introducing
this system into small-scale or mixed fisheries would be unaware that its
social, economic, and political ramifications favour large-scale business at
the expense of local fisheries and processing industries, and small-scale
operators, and threaten the survival of the small-scale fishing sector. ITQs tend to depress artisans and effectively exclude
part-time participants in local fisheries, favour the owners, while
disregarding crewmembers. Hence, selection of ITQ
for such fisheries must reflect the political and social attitudes of the
respective government.
Green non-governmental organizations (NGOs)
have willy-nilly contributed to the privatization trend. Although some of
them, as for example Greenpeace, have joined protests against the tradable
quotas system, there have been NGOs’ with often-exaggerated and
sometimes even fallacious alarmist publications as to the state of fishery
resources painting fishermen as the main culprits, which fuelled the neoclassical
economists’ fires. ITQ advocates have claimed
that only management systems based on that or other forms of resource
privatization would maintain fish stocks on sustainable levels.
Their main argument was: “If fishing
interests are allowed to invest in a permanent share of the TAC, so that they’d be sure of their relative share
in the landings of the respective species from a given area, they
wouldn’t need to apply the “gold-rush” mode of operation,
and would be interested in maintaining the resource in an everlastingly
sustainable condition”. This
argument, however, is irrelevant in the great majority of cases where the
“gold-rush” condition is absent.
Notwithstanding, ITQs
are a rather peculiar sort of property rights: fishermen must pay sometimes
quite heavily for the right to catch a certain amount of fish, without
knowing whether they’ll be able to get it and at what operational cost
They don’t really control the resource and don't know whether by
observing the rules and sticking to the quota they won’t be made
suckers by others. Hence, the well-intended potential stewardship over the
resources by quota-owners is, in fact, more often frustrated by high grading,
fish dumping, and quota busting. While ITQs indeed
mitigated the “gold-rush” fishing, and their contribution to
stock conservation might have happened in a few fisheries, it has been proved
so only in a couple of them. At the same time, many failures have been
reported and documented.
Small under siege. The ITQ-system would be socially and nationally justifiable
mainly on high seas, where the resource is technically not accessible to
small and middle-scale operators based on coastal fishing communities, and
where exploitation of the resource requires large-scale industrial fishing vessels
and fleet-logistics. But small-scale operators, who traditionally exploit
inshore and coastal resources, predominantly consider marketable quotas
socially and also economically wrong. Harvesting methods that are most
efficient in financial terms are often the ones with the worst collateral
(including environmental) impact, while less capital-intensive and
technologically and operationally sophisticated fishing methods normally
allow wider and much more equitable access to benefits from the fishery, with
less negative environmental and social impacts.
In
Third World countries, for example, traditional and other coastal fisheries
operate under many stresses, the main one being invasion of larger-scale
fisheries into waters and stocks accessible to and fishable by small scale
fishermen, often with official government support or high-circles’
well-paid “closing of the eye”.
But, in such areas, large-scale operations are by most criteria less efficient
than small-scale fishing. They consume several times more fuel per each tonne
of marketable fish than the small-boat fishery, their capital investment in
gear and vessels is much higher, and they produce fewer true national
benefits.
The same fish stock that can be fully and profitably exploited by 10 trawlers
manned by 100 people, if allocated exclusively to coastal fisherfolk
using nets, pots, and hooks-and-lines, may provide living to many hundreds,
or maybe thousands of them, never mind how low their calculated profits are
going to be.
In many areas, both
recreational and small-scale commercial fisheries form the backbone of
coastal communities whose economies revolve around fishing. It causes money
to flow to equipment and bait, food and fuel suppliers, boatyards, and a
variety of commercial and technical services in docks, harbours and marinas,
as well as those sectors of the tourist industry that are centered
on fishing communities.
Hidden agendas. No doubt that management decisions
depend first at all on the prevailing policy objectives. Different governments
and the powers that influence them may have different, above-board and hidden
agendas. Hence, worldwide, there's no consensus on the objectives of
fisheries management. Some governments may believe that the only or main
objective is to maintain a financially most profitable fishery. Other may
consider that, apart from supplying fish to the market, an important goal is
safeguarding the well being of communities, where fishery is an important
contributor to the local and, thus, national economy. "Safeguarding the
well-being" means creating and maintaining conditions that would enable
fishing industry adequate return on investment, and fishing people,
sufficient take-home income. It also may mean that in certain special
circumstances, the State may have to intervene to help a community over a
temporary hardship, as it would do for farmers hit by a drought year, or an
industrial community hit by an earthquake. Isn’t it what governments
are for: collecting taxes, providing services, and helping in trouble?
Subsidies. Some
governments, as well as most global, transnational,
and intergovernmental financial institutions are driven by the neoclassical
ideology, especially when it comes to economic relations with developing
nations. Undeniably, some of the conditions of economic co-operation and
assistance imposed by those institutions stem from their wish to protect
their investments from misconduct, corruption, and mismanagement. But, only
too often, under the hypocritical pretext of securing free market and economic
liberalization, their conditions are simply a tool of protectionism. And here we come to fisheries subsidies.
The USA, the EU and some other developed countries,
in view of the heavy overcapitalisation of their fishing fleets, came to the
quite appropriate decision to stop subsidizing construction of fishing
vessels. They want, however, to have their new policies “globalized” to cover also the developing world.
A number of developing
countries have had for many years too large national fleets, and they as well
should not subsidize overcapacity. However, any international agreement
involving fishery subsidies should take into account small-scale fishermen,
who have to compete over their local fish resources against large-scale
fishing fleets that are allowed to fish, or just poach on their native,
traditional fishing grounds. Such fleets are subsidized, almost as a rule,
whether directly or in a roundabout manner, as are the EU
payments for access to fishing grounds of Third World nations. Small-scale fisherfolks operating under such conditions deserve
support both on the part of their own respective governments, as well as of
the international community. Would it be too much to ask WTO,
EU, and individual governments of countries whose
fleets are out to exploit coastal fish stocks of their own or other
countries, as well as the governments who allow such fleets into their
coastal waters, to give them a fighting chance?
Joining
forces. Fisherfolk
in the small and medium scale sectors both, owners and hired hands faced with
dislocation from their traditional fisheries by management systems based on
marketable fishing rights, should recognize that their main adversaries are
the standard bearers of the neoclassical economics in national and transnational financial institutions and corporations,
and their proxies in fisheries management. It is very difficult to resist
such powerful interests in democratic societies without joining forces. For
this purpose, provincial, national, and regional fishermen’s associations
should organize under common umbrellas. Also international associations of
fishing people should create a joint worldwide umbrella that without
affecting their respective structure and character, would enable them to
board the globalization train in weight and force.
*An earlier version of this are article was
published under the same title in SAMUDRA Report
(35), July 2003.
______________________________
SUGGESTED CITATION:
M. Ben-Yami, “Fisheries management: Hijacked my neoliberal economics”, post-autistic
economics review, issue no. 27, 9 September 2004,
article 3, http://www.btinternet.com/~pae_news/review/issue27.htm
PAE in the News:
from Adbusters,
Sep/Oct 2004
Post-Autistic Economics:
What economics students in three countries are doing to put their professors
on the defensive
Deborah Campbell* (Canada)
France
The university-aged children of
France’s ruling class ought to have been contentedly biding their time.
They were, after all, destined to move into the high-powered positions
reserved for graduates of the elite École Normale Supérieure (ENS). “The ENS is for the
very good students, and the very good students aren’t afraid to ask
questions,” says Sorbonne economist Bernard Geurrien.
In Spring 2000 he addressed a conference on
the disconnect between mainstream neoclassical economics instruction and
reality. Economics has an ideological function, he told them, to put forth
the idea that the markets will resolve everything. In fact, he added,
economic theory absolutely doesn’t show that.
A group of economics students, their worst
fears confirmed, approached Guerrien eager to
“do something.” A week later, 15 of them gathered in a classroom
to hash out a plan of attack. Someone called the reigning neoclassical dogma
“autistic!” The analogy would stick: like sufferers of autism,
the field of economics was intelligent but obsessive, narrowly focussed, and
cut off from the outside world.
By June, their outrage had coalesced into a
petition signed by hundreds of students demanding reform within economics
teaching, which they said had become enthralled with complex mathematical
models that only operate in conditions that don’t exist. “We wish
to escape from imaginary worlds!” they declared. Networking through the
internet and reaching the media through powerful family connections, they
made their case.
“Call to teachers: wake up before
it’s too late!” they demanded. “We no longer want to have
this autistic science imposed on us.” They decried an excessive
reliance on mathematics “as an end in itself,” and called for a
plurality of approaches.
With that, ‘autisme-économie,’
the post-autistic economics (PAE) movement, was
born.
Their revolutionary arguments created an
earthquake in the French media, beginning with a report in Le Monde that
sent a chill through the academic establishment. Several prominent economists
voiced support and a professors’ petition followed. The French
government, no doubt recalling the revolutionary moment of May 1968, when
students led a 10-day general strike that rocked the republic to its
foundations, promptly set up a special commission to investigate. It was
headed by leading economist Jean-Paul Fitoussi, who
also traveled to Madrid to address Spain’s
nascent “post-autistic” student movement. Fitoussi’s
findings: the rebels had a cause. Most important to the PAE,
Fitoussi agreed to propose new courses oriented to
“the big problems” being ignored by mainstream economics:
unemployment, the economy and the environment.
A backlash was inevitable. Several
economists (notably the American Robert Solow from
MIT), launched a return volley. What followed was an attempt to discredit the
PAE by implying that the students were
anti-intellectuals opposed to the “scientificity”
of neoclassical economics. The accusations didn’t stick: the dissenters
were top students who had done the math and found it didn’t add up.
Gilles Raveaud, a
key PAE student leader, along with Emmanuelle Benicourt and Iona Marinescu,
sees today’s faith in neoclassical economics as “an intellectual
game” that, like Marxism and the Bible, purports to explain everything,
rather than admitting there are many issues it hasn’t figured out.
“We’ve lost religion,” says Raveaud,
“so we’ve got something else to give meaning to our lives.”
Benicourt described her
hope for PAE as follows: “We hope it will
trigger concrete transformations of the way economics is taught . . . We
believe that understanding real-world economic phenomena is enormously
important to the future well-being of humankind, but that the current narrow,
antiquated and naive approaches to economics and economics teaching make this
understanding impossible. We therefore hold it to be extremely important,
both ethically and economically, that reforms like the ones we have proposed
are, in the years to come, carried through, not just in France, but
throughout the world.”
United Kingdom
Raveaud and Marinescu, key French PAE student
leaders, visited the Cambridge Workshop on Realism and Economics in the UK.
“It must have been the right time,” says Phil Faulkner, a PhD
student at Cambridge University. That June he and 26 other disgruntled PhD
students issued their own reform manifesto, called “Opening Up
Economics,” that soon attracted 750 signatures. Economics students at
Oxford University, who had been at the same workshop, followed with their own
“post-autistic” manifesto and website. Similar groups linked to
heterodox (as opposed to orthodox) economics began emerging elsewhere in
Europe and South America.
The Cambridge rebellion “was prompted
by frustration,” says Faulkner, but they hadn’t expected such a
positive reception from fellow students. “If anyone were to be happy
about the way economics had gone, we’d expect it to be PhD students,
because if they were unhappy with it, they simply wouldn’t be here. In
fact, that wasn’t the case.”
As expected, Cambridge ignored them. Their
efforts, Faulkner explains, were meant to show support for the French
students and to use their privileged position at the esteemed economics
department to demonstrate to the rest of the world their discontent. Some of
the signatories worried that speaking out could have dire consequences, and
the original letter was unsigned. “I think it’s more future
possibilities, getting jobs, etc., that [made them think] it might not be
smart to be associated with this stuff,” says Faulkner. He says he
already knew that his research interests meant he would have to work outside
of the mainstream: “There was nothing to lose really.”
Edward Fullbrook,
a research fellow at the University of the West of England, had already
launched the first post-autistic economics newsletter in September 2000. Inspired
by the French student revolt and outraged by stories emerging from American
campuses that courses on the history of economic thought were being
eradicated (which he viewed as an effort to facilitate complete
indoctrination of students), Fullbrook battled hate
mail and virus attacks to get the newsletter off the ground. Soon, prominent
economists such as James Galbraith stepped up to offer encouragement and hard
copy. The subscriber list ballooned from several dozen to 7,500 around the
world.
Fullbrook edited The
Crisis in Economics, a book based on PAE
contributions, now being translated into Chinese. Textbook publishers, always
hunting for the next big thing, have been inquiring about PAE
textbooks. It makes sense, says Fullbrook, since enrollments in standard economics classes have been
dropping, cutting into textbook revenues. In other words, students just
aren’t buying it. Ironically, says Fullbrook,
“Market forces are working against neoclassical economics.”
One of his contributors is Australian
economist Steve Keen, who led a student rebellion in 1973 that led to the
formation of the political economy department at Sydney University.
“Neoclassical economics has become a religion,” says Keen.
“Because it has a mathematical veneer, and I emphasize the word veneer,
they actually believe it’s true. Once you believe something is true,
you’re locked into its way of thinking unless there’s something
that can break in from the outside and destroy that confidence.”
But the neoclassical model still reigns supreme
at Cambridge. Phil Faulkner now teaches at a university college, but is
limited to mainstream economics, the only game in town. “If
you’re into math, it’s a fun thing to do,” he says.
“It’s little problems, little puzzles, so it’s an enjoyable
occupation. But I don’t think it’s insightful. I don’t
think it tells these kids about the things it claims to describe, markets or
individuals.”
United States
Sitting in an overcrowded café near Harvard
Square, talking over the din of full-volume Fleetwood Mac and espresso fueled chatter, Gabe Katsh describes his disillusionment with economics
teaching at Harvard University. The red-haired 21-year-old makes it clear
that not all of Harvard’s elite student body, who pay close to $40,000
a year, are the “rationally” self-interested beings that
Harvard’s most influential economics course pegs them as.
“I was disgusted with the way ideas
were being presented in this class and I saw it as hypocritical – given
that Harvard values critical thinking and the free marketplace of ideas
– that they were then having this course which was extremely
doctrinaire,” says Katsh. “It only
presented one side of the story when there are obviously others to be
presented.”
For two decades, Harvard’s
introductory economics class has been dominated by one man: Martin Feldstein.
It was a New York Times article on Feldstein titled “Scholarly Mentor
To Bush’s Team,” that lit the fire under the Harvard activist.
Calling the Bush economic team a “Feldstein alumni club,” the
article declared that he had “built an empire of influence that is
probably unmatched in his field.” Not only that, but thousands of
Harvard students “who have taken his, and only his, economics class
during their Harvard years have gone on to become policy-makers and corporate
executives,” the article noted. “I really like it; I’ve
been doing it for 18 years,” Feldstein told the Times. “I think
it changes the way they see the world.”
That’s exactly Katsh’s
problem. As a freshman, he’d taken Ec 10,
Feldstein’s course. “I don’t think I’m alone in
thinking that Ec 10 presents itself as politically
neutral, presents itself as a science, but really espouses a conservative
political agenda and the ideas of this professor, who is a former Reagan
advisor, and who is unabashedly Republican,” he says. “I
don’t think I’m alone in wanting a class that presents a balanced
viewpoint and is not trying to cover up its conservative political bias with
economic jargon.”
In his first year at Harvard, Katsh joined a student campaign to bring a living wage to
Harvard support staff. Fellow students were sympathetic, but many said they
couldn’t support the campaign because, as they’d learned in Ec 10, raising wages would increase unemployment and hurt
those it was designed to help. During a three-week sit-in at the Harvard
president’s office, students succeeded in raising workers’ wages,
though not to “living wage” standards.
After the living wage
‘victory’, Harvard activists from Students for a Humane and
Responsible Economics (share) decided to stage an intervention. This time,
they went after the source, leafleting Ec 10
classes with alternative readings. For a lecture on corporations, they handed
out articles on corporate fraud. For a free trade lecture, they dispensed
critiques of the wto and imf.
Later, they issued a manifesto reminiscent of the French post-autistic
revolt, and petitioned for an alternative class. Armed with 800 signatures,
they appealed for a critical alternative to Ec 10.
Turned down flat, they succeeded in introducing the course outside the
economics department.
Their actions follow on the Kansas City
Proposal, an open letter to economics departments “in agreement with
and in support of the Post-Autistic Economics Movement and the Cambridge
Proposal” that was signed by economics students and academics from 22
countries.
Harvard President Lawrence Summers
illustrates the kind of thinking that emerges from neoclassical economics.
Summers is the same former chief economist of the World Bank who sparked
international outrage after his infamous memo advocating pollution trading
was leaked in the early 1990s. “Just between you and me,
shouldn’t the World Bank be encouraging MORE migration of the dirty
industries to the LDCS [Less Developed
Countries]?” the memo inquired. “I think the economic logic
behind dumping a load of toxic waste in the lowest wage country is impeccable
and we should face up to that . . . I’ve always thought that
under-populated countries in Africa are vastly UNDER-polluted . . . ”
Brazil’s then-Secretary of the Environment,
Jose Lutzenburger, replied: “Your reasoning
is perfectly logical but totally insane . . . Your thoughts [provide] a
concrete example of the unbelievable alienation, reductionist
thinking, social ruthlessness and the arrogant ignorance of many conventional
‘economists’ concerning the nature of the world we live
in.”
Summers later claimed the memo was intended
ironically, while reports suggested it was written by an aide. In any case,
Summers devoted his 2003/2004 prayer address at Harvard to a “moral”
defense of sweatshop labor,
calling it the “best alternative” for workers in low-wage
countries.
“You can’t ignore the academic
foundations for what’s going on in politics,” says Jessie Marglin, a Harvard sophomore with share. share
didn’t want a liberal class with its own hegemony of ideas. It wanted
“a critical class in which you have all the perspectives rather than
just that of the right.” Without an academic basis for criticism, other
approaches “aren’t legitimized by the institution,” she
says. “It becomes their word versus Professor Feldstein, who is very
powerful.”
Harvard economics professor Stephen Marglin, Jessie’s father, teaches the new course. A
faculty member since 1967, Marglin was the tail end
of a generation formed by the Great Depression and World War II. “This
generation,” he says, “believed that in some cases markets could
be the solution, but that markets could also be the problem.”
His new course still uses the Ec 10 textbook, but includes a critical evaluation of the
underlying assumptions. Marglin wants to provide
balance, rather than bias. “I’m trying to provide ammunition for
people to question what it is about this economic [system] that makes them
want to go out in the streets to protest it,” he says. “I’m
responding in part to what’s going on and I think the post-autistic
economics group is responding to that. Economics doesn’t lead politics,
it follows politics. Until there is a broadening of the political spectrum
beyond a protest in Seattle or a protest in Washington, there will not be a
broader economics. People like me can plant a few seeds but those seeds
won’t germinate until the conditions are a lot more suitable.”
The revolution is spreading. A slogan
emblazoned on a wall on a Madrid campus, where the PAE
movement has been making inroads, makes its case: “¡La economia es de gente, no de curvas!”
– “Economics is about people, not curves!”
* Deborah Campbell is an associate editor at Adbusters magazine and the author of This Heated Place.
http://adbusters.org/
______________________________
SUGGESTED CITATION:
Deborah Campbell, “Post-Autstic Economics”, post-autistic
economics review, issue no. 27, 9 September 2004,
article 4, http://www.btinternet.com/~pae_news/review/issue27.htm
______________________________________________________________________________________________________
EDITOR:
Edward Fullbrook
CORRESPONDENTS: Argentina: Iserino; Australia: Joseph Halevi,
Steve Keen: Brazil: Wagner Leal Arienti; France: Gilles Raveaud,
Olivier Vaury, J. Walter Plinge; Germany: Helge Peukert; Greece: Yanis Varoufakis; Japan: Susumu Takenaga; United Kingdom: Nitasha Kaul; United States: Benjamin Balak,
Daniel Lien, Paul Surlis: At large: Paddy Quick
PAST CONTRIBUTORS: James Galbraith, Frank Ackerman, André Orléan, Hugh Stretton, Jacques Sapir, Edward Fullbrook, Gilles
Raveaud, Deirdre McCloskey, Tony Lawson, Geoff
Harcourt, Joseph Halevi, Sheila C. Dow, Kurt
Jacobsen, The Cambridge 27, Paul Ormerod, Steve
Keen, Grazia Ietto-Gillies,
Emmanuelle Benicourt, Le Movement Autisme-Economie, Geoffrey Hodgson, Ben Fine, Michael A. Bernstein,
Julie A. Nelson, Jeff Gates, Anne Mayhew, Bruce Edmonds, Jason Potts, John
Nightingale, Alan Shipman, Peter E. Earl, Marc Lavoie, Jean Gadrey, Peter Söderbaum,
Bernard Guerrien, Susan Feiner,
Warren J. Samuels, Katalin Martinás, George M. Frankfurter,
Elton G. McGoun, Yanis Varoufakis, Alex Millmow, Bruce
J. Caldwell, Poul Thøis
Madsen, Helge Peukert,
Dietmar Lindenberger, Reiner Kümmel, Jane King, Peter
Dorman, K.M.P. Williams, Frank Rotering,
Ha-Joon Chang, Claude Mouchot,
Robert E.
Lane, James G. Devine, Richard Wolff, Jamie Morgan, Robert Heilbroner, William Milberg, Stephen T. Ziliak,
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K. Wilber, Robert Costanza, Saski
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Pablo Pardo-Guerra, Kevin Quinn, Trond Andresen, Shaun Hargreaves
Heap, Lewis L. Smith, Gautam Mukerjee,
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