Commentary on Political Economy

Friday 30 September 2011

Interpreting Bourgeois Economics – Bernanke and the Washington Consensus

Perhaps the most important task that we have set ourselves on this site is to assist the friends who visit us to interpret bourgeois economics which, far from being a ‘science’ is indeed a ‘strategy’ (some would call it an ‘ideology’, but that term is too ‘ideological’ for our liking) of capitalist domination and command over living labour. We have set ourselves a grand and challenging goal – one that we feel extremely well-equipped to achieve: to present the most radical critique of capitalism through a thorough analysis of its historical and philosophical origins and development. On this site, friends will find dispersed over several interventions important analytical departure points from which they can initiate such a critique for themselves. A more thorough, though not yet ‘systematic’, outline of our theses will be found in our book on Nietzsche – which should be available before the end of the year (it is now nearly completed).
So let us continue the performance of our task with a brief look at Ben Bernanke’s latest speech on “the Washington Consensus” about the stages of capitalist development as agreed by the global capitalist institutions (IMF and World Bank) in Washington, to see what this tells us about the self-understanding of the hated bourgeoisie – this pernicious band of rotten and craven vermin that now threatens the very future of our world.
the Chairman of the US Federal Reserve, Ben Bernanke, addresses what he calls “the powerful long-term trends shaping the global economy”. It may well be instructive for us to decipher his intervention closely given that Bernanke represents perhaps the most incisive and authoritative viewpoint of capitalist economic strategy in both officialdom as well as in academic circles.
Bernanke’s aim is made explicit by the title of his speech: - “Lessons from Emerging Market Economies on the Sources of Sustained Growth”. Is it possible to derive “lessons” from “emerging market economies” about some generic “sources of sustained growth”?
Notice first of all how Bernanke fails to define “growth”, taking this to be the orthodox definition and measurement of “economic growth” as defined by orthodox bourgeois economics. There is only one type of “economic growth” for Bernanke – the one defined by orthodox bourgeois economic theory in terms of GDP. There may be “emerging market economies”, but these are only “emerging” along what Bernanke presumes is an established model and pattern of “economic growth” set out already for the rest of the world by the leading and oldest (“developed” as against “emerging”) “market economies” – by which Bernanke means “capitalist” economies.
For we know that these economies are “capitalist”, but we deny that they have anything to do with “markets” because (as we have argued on this site) “the market” has no legitimate historical or analytical foundation in the development of capitalist economies. In a capitalist economy, “the market” means only that the living activity of workers is separated or alienated from the means of production (tools and raw materials) so that this “living activity” becomes pure “labour power or labour force” incapable of pro-ducing or “creating” anything without the will and consent of the “owner” of the means of production – the capitalist! In other words, a “market” economy entails merely the domination by dead objectified labour (in the shape of tools and raw materials owned by the capitalist) over the living labour of workers!
Thus, what Bernanke is assuming or presuming is that there is only one type of “economy” or human social production, and that is “the (capitalist) market economy”: one model of “growth”, one type of social advancement and progress that is set by the capitalist world for the rest of the globe and pro-jected into the indefinite future!
But careful! What Bernanke is seeking to do here is made clear from his title: he is seeking “to draw lessons” from these “emerging market economies” about how to achieve “sustained growth” in all capitalist economies, whether “advanced” or “emerging”! Clearly then, Bernanke is saying that it may now be time for the “emerging” capitalist countries to teach or show the way to the “advanced” or ageing capitalist countries of the West about how to find the path to “sustained economic growth” from which they have most certainly “strayed” in recent times. It is now the child who teaches the parent how to walk and talk; it is the “developed” capitalist world that needs to learn from the “emerging” capitalist countries the exact pattern and mode of behaviour to return quickly to the now-lost “path to sustained economic growth”.  This is somewhat bemusing, because one would have thought that it is always the “developed” or “advanced” country that should show to the “emerging” or “underdeveloped” world the so-called “path” to the so-called “sustained” economic growth. But no – for Bernanke it may well be time to look in the opposite direction, to invert or reverse the course of history and see if the “younger”, “fresher” capitalist bourgeoisies can teach the “older”, sclerotic and rigid ones of the West a trick or two about  “development”, about pointing the way forward.
When we peer more closely into Bernanke’s categorisation of the Washington Consensus, we see that the fundamental components or ingredients of  this Consensus are really nothing more than a summary description of the basic “institutional” features of Western capitalism. Bernanke does not intend to question the fundamental premises of capitalist industry and society but rather limits himself to recapitulating the most essential institutional features of  capitalism:
Williamson's original list of recommendations can usefully be divided into three categories: first, steps to increase macroeconomic stability, such as reducing fiscal deficits (which had caused high inflation in many countries), broadening the tax base, and reallocating government resources to build human and physical capital; second, actions to increase the role of markets in the economy, such as privatization of public assets, appropriate deregulation, and the liberalization of trade, interest rates, and capital flows; and third, efforts to strengthen institutions that promote investment, business formation, and growth, particularly by enhancing property rights and the rule of law.
These are categories that mirror closely the orthodox description of capitalist institutions. As such, they do not add much at all to what is the normal bourgeois understanding of “what makes capitalism tick”. Therefore they do not help us identify what exactly Bernanke thinks are the “lessons” to be learned from the recent high rates of growth of “emerging market economies”, except for one thing. If you look at the common denominator in all the elements that Bernanke enumerates in this section as leading to successful growth and integration in the capitalist global economy, you will find it in one thing and one thing only – what Paul Krugman has characterised as “the mobilisation of resources”. This is also in line with what we have described on this site as “absolute exploitation”.
Quite simply, what successful emerging capitalist bourgeoisies do is simply accelerate and intensify the adoption of existing capitalist institutions and technologies from the “developed” capitalist countries! In other words, there is really no secret recipe or element of “innovation” at all (!) in the “success” of emerging “market economies”: there is merely “more” – in fact, much more! – of the same: more workers through the expropriation of peasants from their lands and their agglomeration in urban industrial centres; more workers through the exasperation of fertility rates and population growth to free up industrial proletariats; more and faster disintegration of social and moral values so as “to free” human beings as “workers” on the “labor market”; more environmental degradation for easy access to “resources” that make up industrial production. In short: the lesson is “more of the same”! More exploitation of human and environmental resources for faster integration in the global capitalist economy! That this is the major “lesson and implication” that Bernanke draws from his short review of the Washington Consensus he himself makes blindingly obvious and unequivocally explicit in the appropriately-named paragraph of his speech:
What implications can we draw for longer-term prospects for growth in the emerging market economies? Notwithstanding the recent impressive growth, output per person in the emerging market economies generally remains much lower than in the advanced economies. This fact suggests that the emerging market economies should be able to maintain relatively high growth rates for some years to come, as they continue to catch up to the advanced economies. But over time, as the emerging market countries become wealthier and technologically more sophisticated, they will gradually lose the advantages of starting from behind. Even with continued strong policies, their growth will slow as returns to capital investments diminish and the most profitable opportunities are exploited.
Clearly, the “implication” of Bernanke’s analysis is that what drives “growth” in emerging… “market economies” is purely and simply the fact that “investments” in those countries are initially more profitable than (capitalist) “investments” in the “advanced capitalist economies”! And that greater profitability of emerging countries is driven far and away by “lower wage costs” and the simple “transfer” of “technology” from the advanced capitalist countries by Western bourgeoisies eager to lower wage costs at home!
So, in conclusion, what can possibly be the “lessons and implications” for the “advanced” capitalist countries as against the “emerging” ones? The first one is that “emerging” countries have to stop suppressing domestic demand and run trade surpluses because – as the gentleman he is – Bernanke cannot approve of the “absolute exploitation” of the workers of “emerging economies” by their dictatorial bourgeoisies. Here is Bernanke:
Many emerging markets also will be challenged by their reliance on trade to drive growth. As I have discussed, international trade has many benefits. However, generating trade surpluses by suppressing domestic demand defeats the ultimate purpose of economic growth--improving the lot of the country's own citizens. Large and persistent imbalances in trade are also inconsistent, in the long run, with global economic and financial stability.
Yet in Bernanke’s view this does not entirely exonerate the “advanced” capitalist countries from honouring their part of the capitalist deal – that is to say, from seeking to counter-balance the expansion of consumption in the emerging countries with their own compensating “suppression of domestic demand” by adopting – precisely! – part of those measures of “absolute exploitation” that the “emerging market economies” have copied (literally!) from the capitalist West in order to exploit their own workers! Here is Bernanke once more:
Of course, the advanced economies, like the United States, need to do their part as well in reducing global imbalances, as I have noted on numerous occasions before….
Indeed, advanced economies like the United States would do well to re-learn some of the lessons from the experiences of the emerging market economies, such as the importance of disciplined fiscal policies, the benefits of open trade, the need to encourage private capital formation while undertaking necessary public investments, the high returns to education and to promoting technological advances, and the importance of a regulatory framework that encourages entrepreneurship and innovation while maintaining financial stability. As the advanced economies look for ways of enhancing longer-term growth, a re-reading of Williamson's original Washington Consensus, combined with close attention to the experiences of successful emerging market economies, could pay significant dividends.
“Pay significant dividends”! Exactly right! “Dividends” are what matters here. And the fact of the matter, the crux of the biscuit is that what drove Western capitalists originally to invest in “emerging economies” was the declining “profitability” in the West and the better opportunities in the “underdeveloped world”. But what we find now is that those “investment opportunities” have declined precipitously in recent years – and, separately, the “profits” made by some of the bourgeoisies on the “emerging countries”, China especially, have been used by their rising bourgeoisies to arm themselves to the point where they now pose a clear and imminent threat to the Western bourgeoisies themselves! Ecce Arcanum imperii! This is the secret of the capitalist empire! The question for us to confront now is “why” profitability has declined the world over and what this means for the future of capitalism.

THE STATE OF EQUILIBRIUM: Historical Antecedents of ‘Supply-Side Economics’ in the Austrian School – Prices, Production, State Policy – Part 4

If “prices” are the empirical, “visible” manifestation of the exchange of the “utility” of goods at the margin, if as Bohm-Bawerk and the Austrian School insisted it is purely a “metaphysical” exercise to linger on the “value” that goes into the “pro-duction” of exchange values – it follows necessarily (though tautologously) that “market prices” are the only “reality” that counts, the only effective social “validation” of the “social synthesis”, the “co-ordination of production and consumption”, the “equivalence” of the different individual plans of market participants. The market’s “price mechanism” is scientifically “true” because it is “valid” – because it “works”, because “it tends toward equilibrium”.
The Austrian School’s approach removes completely the need to inquire into the essence, “stuff”, the “substratum” or quidditas, the “inputs” that lie beneath or behind or inside “prices”. In the “new classical” theory, prices merely reflect a “subjective” entity, one just as “metaphysical” as the “labour value” of Classical Political Economy, but a “metaphysics” that can now finally throw away this inscrutable “teleological/conative” entity and concentrate on the “effectiveness” of the “price mechanism” in achieving “equilibrium”.
But if “production” of goods is now an “inscrutable black box”, a lucus a non lucendo, then how can the “empirical existence” of interest and profit as the most “visible” attributes of “capital” – how can these be explained, accounted for, in a manner that does not include “production”? Quite obviously, not by physical or material “inputs” as in the “labour theory of value”, but by “negative” means, by the “renunciation” (Entsagung) or “delay” of present consumption. “Interest” is the “price” paid by the users of capital to compensate its owners for “waiting”, for delaying its consumption so that it can be used “to produce” goods for immediate consumption. In Bohm-Bawerk’s version, interest derives from the fact that “more roundabout” methods of production (methods that “delay” consumption) are more “productive” than “less roundabout” methods (see his deceptively-named ‘Positive Theory of Capital’).
(On the “negative” scientific approach, cf. Mach, ‘Con.etErr.’, ch1. On the equivalent of “roundaboutness” in sc.meth. see p.368, ch. on ‘Sens et Valeur des Lois Scntfq.’!)
(Schumpeter proffers an analogous version: “Interest is a premium on present over future means of payment, or, as we will say a potiori, balances. Interest is the price paid by borrowers for a social permit to acquire commodities and services without having previously fulfilled the condition which in the institutional pattern of capitalism is normally set on the issue of such a social permit, i.e., without having previously contributed other commodities and services to the social stream,” (Business Cycles, p.124)).
If indeed the “market price mechanism” has an irresistible tendency to move toward “equilibrium” because it is the best mechanism available to ensure that individual plans (utilities) are satisfied by the exchange of goods, it follows that no “collective” social institution (no government, let alone something like Rousseau’s “volonte’ generale”) can be allowed to interfere with it. Even government economic policies aimed at maintaining broad economic “aggregates” such as employment or the price level or the money supply, would not “balance” the economy because of the “differential” impact of such policies on the demand schedules of consumers and producers. Given the “positive theory of capital” outlined by Bohm-Bawerk, any economic stimulus that was not “neutral” in terms of the demand schedules of independent individuals would necessarily and detrimentally affect market “equilibrium”. As Hayek put it in ‘Prices and Production’: "It would be easy to demonstrate by the same type of analysis which I have used in the last two lectures that certain kinds of State action, by causing a shift in demand from producers' goods to consumers' goods, may cause a continued shrinking of the capitalist structure of production, and therefore prolonged stagnation. This may be true of increased public expenditure in general or of particular forms of taxation or particular forms of public expenditure. In such cases, of course, no tampering with the monetary system can help. Only a radical revision of public policy can provide the remedy."
The “kinds of State action” Hayek has in mind include all except “neutral” forms of monetary policy. Hayek takes pains to show that monetary policies aimed at avoiding deflation by maintaining “aggregate demand”, in particular, will shift demand toward consumption goods, lowering real interest rates as “more roundabout” production methods become less profitable and resulting ultimately in a spiral of higher prices for consumer goods as well as unemployment. In an oft-quoted passage, Hayek illustrates starkly the effects of Keynesian-style “redistributive” economic policies:
"It seems something of a paradox….But the fact is that when the growing demand for finished consumers' goods has taken away part of the non-specific producers' goods required,
those remaining are no longer sufficient for the long processes, and the particular kinds of specific goods required for the processes which would just be long enough to employ the total quantity of those nonspecific producers' goods do *not yet exist. The situation would be similar to that of a people of an isolated island, if, after having partially constructed an enormous machine which was to provide them with all necessities, they found out that they had exhausted all their savings and available free capital before the new machine could turn out its product.
They would then have no choice but to abandon temporarily the work on the new process and to
devote all their labour to producing their daily food without any capital. Only after they had put themselves in a position in which new supplies of food were available could they proceed to attempt to get the new machinery into operation.1 In the actual world, however, where the accumulation of capital has permitted a growth of population far beyond the number
which could find employment without capital, as a general rule the single workman will not be able to produce enough for a living without the help of capital and he may, therefore, temporarily become
unemployable. And the same will apply to all goods and services whose use requires the co-operation of other goods and services which, after a change in the structure of production of this kind, may not be available in the necessary quantity," (ibidem, p.94).
 That is why “a revision of public policy” is called for – and this means necessarily a reduction of taxation burdens on “producers”. Here, in a nutshell, are the foundations of “supply-side economics”.
(See O’Driscoll’s “Economics as Co-Ordination Problem” at ‘Ricardo Effect’ ff for a discussion of Hayek’s ‘Prices and Production’ and ‘The Pure Theory of Capital’.)

Thursday 29 September 2011

THE STATE OF EQUILIBRIUM: Historical Antecedents of ‘Supply-Side Economics’ in the Austrian School – Labour vs. Utility – Part 3

In Hayek’s circuitous reasoning, “the co-ordination problem” is central to economic analysis because its solution will explain “the social synthesis”, what holds together “the social fabric”, “the economy”. The market “works”, it is the most efficient form of co-ordination of economic activities, because its “price mechanism” is the most efficient means for “individuals” to communicate their individual choices to other market agents…because these “prices” are set “competitively” by individuals… “in the market”. And although these “prices” may not be “optimal”, although they may be “imperfect”, yet the “price mechanism” is the best available…because prices are set by separate individuals in the competitive market! This reasoning is an obvious petitio principii; it begs the question: “the market is ‘best’ compared with what?” What could explain Hayek’s blindness to the “circularity” of his analysis?
The first chapter of Adam Smith’s ‘Wealth of Nations’ had clearly specified the source of economic “wealth”: it is in its title – “Of the causes of Improvement in the Powers of Labour” contains a most detailed study of “the division of labour”. It is this “division of labour” that comes “first”. It alone constitutes “the social synthesis”. As Brian Loasby has put it, “The central issue of modern economics… is the co-ordination of economic activities. The reason is… that individual self-sufficiency is not usually thought to be a good idea. Adam Smith’s analysis of the causes of the wealth of nations begins with two propositions: first, wealth depends fundamentally on productivity, and second, the principal cause of increases in productivity is specialization” (in ‘Equilibrium and Economics’, p.10).
Yet in trying to explain “market prices” by theorising “the labour theory of value”, Classical Political Economy had been unable to explain “profits” or “interest”: - because if the “value” of a good is the amount of “labour” that goes into its production, then there will be no “profit” left for the capitalist; so how could this theory “explain’ the existence of “profit” and, indeed, of “economic growth”? In the end, “labour value” was simply “unobservable”, it was “invisible” – which is why Smith had to invoke “the Invisible Hand” to characterise his solution to “the co-ordination problem”. But this “solution” did not explain the “visible” part of economic exchange – “market prices”. The labour theory of value therefore was an essentialist “metaphysics”, an inscrutable “substance” that did not correspond to empirical reality.
In announcing triumphantly this “collapse” (Abschluss) of the labour theory of value through his critique of Marx’s ‘Capital’, the Austrian economist Bohm-Bawerk traced the “scientific” source of the Classics’ error in his tirade against the German Historical School: “The experience from which the general theory of value is to be derived was about as complete for the classical economists as it is for us. What did they make of it? Some declared that the creative principle and measure of value was the amount of human labor involved; others, more numerous, that it was the cost of production. Both definitions are false, as every one to-day knows. But and this is the point to be emphasized they were branded false, not by the discovery of some new and startling fact which advanced empirical investigation has brought to light, but by the everyday experiences of the world, experiences which were necessarily as familiar to the classical economists as they are to us. It was not that in this case their empirical knowledge was insufficient, but that they here, as in countless other cases, "distilled" badly,” (“Hist. vs. Deductive Method in Pol.Econ.”, 1890).
Rather than see “prices” and “the market” as historical institutions themselves the historical pro-duct of the division of labour and the ensuing “unobservable labour value” as the true original source and measure of the “prices” of market goods, the Austrian School headed by Bohm-Bawerk moves prepotently from the “scientific” solidity of “observable market prices” to reveal what prices presumably “express” – the “subjective”, “individual preferences” of market participants, the “utility” they derive from the goods on sale. Here the turnaround is complete! From the sphere of production we have moved to that of “consumption”. Thus, whereas Classical Political Economy could still locate the source of “wealth” as “value pro-duced” outside (!) the institution of “the market”, the neoclassical theory of “marginal utility” now made “the market”, the sphere of consumption, the only “mechanism” that could assign “utility” to the existing (!) goods in that market. Both “value” and “utility” are “metaphysical” concepts: but whereas “value” has a teleological, moralistic aura to it, “utility” has the self-assuredness, rock-certainty of the “efficient” price and market mechanisms.
The social and political implications of this transformation of “economic analysis” brought about by neoclassical marginal utility theory are now evident. The Classical Political Economists interpreted “economic activity” as the “production of wealth” by means of an ineluctably “social” human reality, “the division of labour”, that represented the culmination of human social co-operation. From their perspective, the economy and the “wealth” it pro-duced was entirely dependent on a pre-existing “social fabric” that certainly could be, and often needed to be (!), “regulated politically” – by the State.
On the contrary, Neoclassical Theory could only interpret and oppose every “political” intervention in “the price and market mechanism” as a “distortion” of the market, as a “distortion” of the “individual preferences” that ensured its proper (though “imperfect”, but “best available”) operation and functioning to ensure the most efficient “distribution of utilities” to individual consumers.
The very fact that Neoclassical Theory and the Austrian School define “market prices” and “market equilibrium” circuitously serves to highlight, apart from the “metaphysical” notion of “utility”, the unscientific faith in the “market mechanism” and its foundation on the “spontaneous individualist choices” of market participants (among which [see quote below] Hayek even enumerates “corporations and monopolies”(!).
In contrast to the “self-regulating/equilibrating” market, the State becomes the scapegoat, the “residual” that can be blamed for any and every “dysfunction” of the market mechanism. (Curiously here, we use “residual” as the ideological object, whereas Pareto would apply it to the “logico-experimental” market mechanism while the appeal to “the State” he would regard as a “derivation”.)

Wednesday 28 September 2011

Here is that FT article on ineffectual EU financial moves mentioned below

Latest Developments in the Capitalist World Economy

As you can see from Michael Pettis’s interesting-as-ever article linked below, things are moving very rapidly in the global capitalist economy, and certainly not in the right direction. You will be able to trace the reasons for these developments in our theoretical analyses spread throughout this site. We tend to steer clear of daily developments for the crucial reason that excessive concentration on current affairs distracts us and detracts from the much more important aim of understanding how capitalism works, why capitalists do what they do and what they are likely to do in the foreseeable future. Soon, our theoretical focus will centre more on what we can do to change things and indeed how we should go about it. I would ask visitors to read our theoretical pieces carefully because they contain vital clues in these essential regards.
Just a couple of quick notes: Apart from Pettis’s excellent points, I wanted to zoom in on the Chinese dictatorship. Pettis is certainly right to say that its options are diminishing very rapidly, and the FT even has an ominous article about what we called months ago (check this site) “the encirclement of the Chinese dictatorship” – which is very much what is happening now.
What Pettis does not say is that the US will be merciless with regard to Germany. The problems of the Eurozone have everything to do with the unwillingness of the German capitalist elites to unify Europe in more than just monetary terms by setting up the euro – which was yet another “imperialist” strategy on their part to achieve what the Nazi dictatorship could not, with the quiet acquiescence of the US willing to absorb German exports and higher capital imports feeding speculation and higher unemployment. We have said repeatedly here that European bourgeois elites are having insurmountable problems now explaining to their electorates that capitalist society is not about "competition" or "competitiveness" but about political power in the form of "profits", which means "greater 'value' coming out of production" that allows "dead labour" (capital) to exercise greater command over "living labour" (our living activity in producing our social reality). Because European elites have "marketed" European Union as a way to greater riches for all and not as an essential political consolidation of Europe in the face of mounting challenges from a fast-unravelling global capitalist economy. The last link below from the FT (and Pettis's sarcasm in Merkel's direction) are wonderful reminders of this deplorable failure of capitalist elites in Europe.

(On a personal note, I find it utterly execrable that we are still talking about "European unity" when the fact that Europe most certainly IS a political entity confronted by enormous external challenges ought to be evident to any European who, like me right now, has ever been to the Far East and South East Asia, from Indonesia to Japan!)
As Pettis says, this music had to stop, “something had to give” – and the US Administration with the Fed will come back with more quantitative easing because they will not tolerate the euro to be so low as it is now. Of course, the US Admin will be delighted with the “collateral damage” this is having on the Chinese dictatorship whose industrial and financial trains are colliding every day as civil unrest grows!!
All these matters may easily be gleaned from the linked articles below. But, again, we wish to concentrate on the “theory” – so we will continue shortly with Part 3 of our look at the Austrian School. And later we will have a superb extract from the ‘Nietzschebuch’ discussing the relationship of bourgeois political theory and the notion of “scientificity” (eminently with regard to economics) since the rise of the bourgeoisie in the middle of the seventeenth century (1600s). Watch out!

(Containment of China’s PLA)
(Pettis’s superb analysis of upcoming currency wars)

Tuesday 27 September 2011

Martin Wolf on the EU Crisis

This article in the FT by Martin Wolf offers an excellent summary of the situation at present and the kind of hurricane that threatens to engulf not just the EU but the global capitalist economy overall.

There are two preliminary points that need to be made for a critical reading of the article: the first is that Wolf discusses the more immediate "technical" hurdles in the way of some sort of "solution" to the current crisis, but he fails to refer to the reality that the crisis itself, originating with the GFC, is merely a symptom of the decline in "profitability" of global capital once the profits and revenue from the Great Moderation that was induced by the exploitation of mainly Chinese workers as the work-horses of the world evaporated in a cloud of speculation from their recycling in the capitalist "metropole".

Wolf never looks into this. The second point is that Wolf does not look into "why" global capitalist elites find it so difficult to agree on what to do: and the obvious reason is that capitalism itself is an "antagonistic" social system that turns its citizens against one another. The details of this antagonism can be found and gleaned from our theoretical pieces on this site. Interestingly, it is now coming to light increasingly from many orthodox commentators (from Wolf to Krugman to Roubini to you name it) that this is a "political" crisis - precisely because, as we stress on this site religiously, "economics is a concentrate of politics".

That is why we concentrate more on the "theoretical" matters than on the "technical" ones - because we must understand this system thoroughly in order to enucleate its weaknesses and then propose possible remedies. In future, we will begin to focus more on the latter.

Second Addendum

Friends will recall that I complimented Bill Gross of PIMCO on a much more sensible newsletter this month in which he approached the realities of global capitalist finance more credibly. Quite unbelievably, however, he ended the newsletter by recommending to his readers that "they diversify away from the greenback toward emerging-market currencied". Friends will recall also that for this indiscretion alone I again labelled Gross "a patented moron and misleading imbecile"! Of course, I knew all too well that the dollar would surge as the European elites unravelled in senseless squabbles rather than grab the bull by the horns.

So here is the FT with the chronicle of how this unfolded:


Here is a brief list of the most recent commentary and news on the crisis of the European "economy" - that is to say, the European bourgeoisie's internecine mismanagement of its territory.

(Andrew Sentence’s sententious imbecility on show regarding the inflationary effects of QE3)
(Martin Wolf asks how banks can target 15% rates of return when economies are growing at less than 2% - but fails to ask what “profit” itself means!)
(Munchau on the political impasse of the European elites)

The European Crisis in a Global Context

Apologies for the delay in commentary on the most recent financial and economic developments coming fast and furious now that require constant upgrading - I was in transit in South East Asia and jet lag caught up with me.

Despite the volatile euphoria of certain bourses and money markets, the dreadful reality is that there is no light at the end of the tunnel for world capitalism - which is always a sign that "alternatives" are possible, but also histrorically a very dangerous time because inter-capitalist rivalries, especially those between nation-states, can give rise - as they are now - to growing international military tensions. The place where I am now, Taiwan, is right at the centre of this gathering storm, in the South China Sea, the most important waterway for global capital on earth.

As we said yesterday, the US are exiting Iraq and Afghanistan the better to concentrate on the Chinese dictatorship which poses by far the greatest threat to world peace at the moment. And the Administration has made it plain to the Europeans that they can no longer count on US co-operation regarding dollar and balance of payments adjustments. Germany in particular will have to expand domestic consumption and forgive debts to the EU periphery unless it wishes to see the eurozone implode, the German currency to soar, and the German economy to be consigned to the dustbin of history. The Americans feel that Europe can take care of itself and no longer poses a global threat as it did in the last century - but China's PLA is another thing!

Nor will the Administration long tolerate a strong dollar to benefit European exporters and Franco-German banks as well: the EU has until perhaps late October "to get its act together" before the American Fed launches a fresh round of QE3 that will send BRIC and European economies into an inflation-powered tailspin of declining "competitivity", capital flight (as happened last week) and deep recession that will pose the greatest danger for the Chinese dictatorship in particular - which is having to grapple with fresh crises and economic decline every passing day.

All these individual "facts" may be gathered easily by browsing through the world financial papers, from the WSJ to the FT to LesEchos to the NYT, so I will not discuss individual articles. My aim here is merely to join the dots together, as it were, so you can see the broader picture. The EU is in deep trouble because its several bourgeois elites have wasted the best part of the last twenty years preaching "competition" to justify and legitimise the consolodation of their power within the EU, in the hope that they would be able to discipline the peripheral working classes with the tight monetary policy of the ECB based on the Bundesbank policies with the Deutschemark. We know that this was not successful now. Curiously, it is easy to see through the ideology here because Germans are always preaching to peripheral states to be more disciplined in terms of consumption and austerity - and so are the peripheral bourgeois elites - so as to be able to compete with German industry. Yet the German and other capitalist elites never accept the opposite argument! That it would be equally well for German workers to consume more so as to balance BoP imbalances within the eurozone! Is that not peculiar?

Monday 26 September 2011

Our Aim Re-stated on the 10,000th Visit!

As this blog nears the 10,000 visits (in just three months!), it may be well to review what our aims are here. We want to change the world. But how? Well, first of all by understanding how and why it is what it is. An article in the NYT just two days ago covering the "indignados" demonstration in Wall Street claimed that its participants did not understand what they were protesting against. We beg to differ: indeed we wonder whether the NYT writers and editors knew what our indignado friends were protesting against!

In reality, we all know intuitively, "viscerally", what is wrong with this world - and a lot of it is under the heading of "capitalism"! So the aim of this site is to understand how capitalism functions and why. To do that, we are not going to go into very "technical", we could call them "econometric" details because those "econometric measurements" are part of the problem in that they "assume" what they mean "to explain"!

The trick that orthodox bourgeois economists perform is simple enough (just look at Paul Krugman for a well-intentioned if insidious illustration): we take "reality" for what the immediate perceived "manifestations" or "phenomena" of the world are - "prices", "markets", "competition", "corporations", entrepreneurs", "profits", "wages", "democratic liberal institutions", "money". Then, from these simple "perceived facts" we move on "to measure" their inter-relation - that is, whether there are "observable regularities and predictabilities" between these "observable facts". Finally, we draw some "causal links" between them! Voila'. C'est tout. The trick is performed! There is nothing left to explain!

What this means is that if we are born in a world with slavery, then we proceed to measure slave labour and institutions as if they were eternal aspects of "human nature" - without questioning why there is slavery in the first place! If you look at how bourgeois "pigs" examine the present "crisis" you will see this pattern of behaviour - capitalism as "human nature" - in full abominable display. That is why on this site we pay a lot of attention to the more "philosophical" aspects of capitalism that help us understand why it works in a certain way, so that we may understand better "how" it actually works and "what we can do about it"!

To paraphrase and re-phrase Karl Marx's Eleventh Thesis on Feuerbach, "the aim of philosophy was always to excuse the world; the point now is to change it". Cheers to all.

THE STATE OF EQUILIBRIUM: Historical Antecedents of ‘Supply-Side Economics’ in the Austrian School – Part 2

THE STATE OF EQUILIBRIUM: Historical Antecedents of ‘Supply-Side Economics’ in the Austrian School – Part 2
As Hayek established in his critique of Walras, the economic notion of “equilibrium” is tautologous in that it makes a number of aporetic assumptions (“apory” is intended here as “historico-logical contradiction”). The assumption that Hayek demolished was that market participants had full and immutable information about the endowments and preferences of all other participants. The effect of this assumption was that “Walrasian equilibrium” was transformed into a totalitarian “social brain” simultaneously holding and clearing all the information socially available about the desired allocation of resources. This “impossible” assumption Hayek dubbed “the Pure Logic of Choice”, and it summarised his objection to socialism. Tersely put, a socialist state’s economic system would not be able to reach its goal of “administratively” knowing the preferences of its citizens without removing their “political independence” – thus turning into a totalitarian state – simply because, in order to do so, these preferences would have to be “co-ordinated” simultaneously without the possibility of “intertemporal” change between their notification and their execution.
Hayek extended this critique also to the neoclassical notion of “pure competition” which he easily disposed of along the same line of attack he adopted for Walrasian equilibrium. Accordingly, Hayek went on to outline his notion of “intertemporal equilibrium” where market participants are allowed to change their preferences and communicate these through free market-pricing mechanisms. The reason why “co-ordination” is needed in a society is that its citizens specialise in different inter-dependent activities, that there is a “division of labour”. Indeed, this is why in Walrasian equilibrium there is exchange at all! But although there is a “need” for individuals to exchange, this exchange must be “free”, that is, it must be according to their spontaneous preferences. As Brian Loasby remarked, given the propensity of individuals to collude for personal gain, “a world of [“enforced”, my addition] universal perfect competition is almost as repellent as a world of perfect slavery; indeed the two are not easily distinguished” (in ‘Equilibrium and Evolution’, p.16).
This is precisely Hayek’s position also. The neoclassical notion of “equilibrium” represents a “closed system”. Perfect simultaneous information and pure competition would turn the market society into a totalitarian state where individuals would not be able to change their choices from beginning to end. Socialism would not have a “co-ordination problem” because its government would be omniscient. The socialist State is “theo-logical” because in seeking to abolish the market and the State of Law it must necessarily postulate the abolition of personal choice, of private property, and individual rights. (There is a striking similarity with Max Weber’s critique of Marx’s vision of a stateless socialism in that its “freedom” was inconsistent with the iron necessity of socialism’s advent pursuant to the “laws of motion” of capitalist society.)
Furthermore, the “closed system” of equilibrium analysis, whilst theoretically resulting in the optimal or “perfect” allocation of resources, also leads inexorably to a stationary state in which there can be neither quantitative-horizontal “growth” (Wachstum) nor innovation-induced industrial and commercial “development” (Entwicklung). Rather than theorise the economy as a stationary state with simultaneous a priori “tautologous” equilibrium where resources were allocated “optimally”, what was needed was an “empirical”, “verifiable” approach that focussed on the central problem of economics – “the co-ordination problem”:
“The problem which we pretend to solve is how the spontaneous interaction of a number of people, each possessing only bits of knowledge, brings about a state of affairs in which prices correspond to costs, etc., and which could be brought about by deliberate direction only by somebody who possessed the combined knowledge of all those individuals.*82 (ibid.)
Hayek’s preferred “empirical” approach consisted in treating the “price mechanism” of the market as the exchange of ‘information’ about individuals’ plans and expectations. Thus, the gravitational centre of the “price mechanism” constituted an “intertemporal equilibrium” where there might be “sub-optimality” in the sense that some resources remained unemployed or underutilised but where at least the consequent “division of information” left individuals free to decide for themselves. As Hayek explained,
“While such a position represents in one sense a position of equilibrium, it is clear that it is not an equilibrium in the special sense in which equilibrium is regarded as a sort of optimum position. In order that the results of the combination of individual bits of knowledge should be comparable to the results of direction by an omniscient dictator, further conditions must apparently be introduced.19 (Individualism and Economic Order, pp.45-46)
The greater this “division of information”, the more freely “competitive” the market, the greater will be the degree of economic freedom, and consequently the legal and political liberty of individuals in society. It follows that any “political” interference on the part of the State through fiscal or monetary policy will distort the “co-ordination mechanism” in ways that will impede the freely-determined “division of information” of individuals and its “co-ordination” through the market “price mechanism”.
Hayek’s attempt is quite obviously circuitous – and therefore tautologous, a posteriori, ex post facto, a petition principii – because it requires us to accept that “the price mechanism”, however “imperfect” or “suboptimal”, constitutes the “best” available form of economic “co-ordination” consistent with “freedom”. But this conclusion is entirely “unfounded” because it assumes what it wishes to prove. The most notable feature of Hayek’s approach is that it substitutes the notion of “the division of labour” which sociologically and economically highlights the “physical interdependence” of the process of production…with “the division of information”, which subtly but decisively shifts the emphasis to the “independence” and subjective “separation” of individuals in society.
From Hayek’s “Ind&EconOrd”: ‘The Pure Logic of Choice’: As I have suggested elsewhere in this volume,2 the tautological method which is appropriate and indispensable for the analysis of individual action seems in this instance to have been illegitimately extended to problems in which we have to deal with a social process in which the decisions of many individuals influence one another and necessarily succeed one another in time. The economic calculus (or the Pure Logic of Choice) which deals with the first kind of problem consist of an apparatus of classification of possible human attitudes and provides us with a technique for describing the interrelations of the different parts of a single plan. Its conclusions are implicit in its assumptions: the desires and the knowledge of the facts, which are assumed to be simultaneously present to a single mind, determine a unique solution. The relations discussed in this type of analysis are logical relations, concerned solely with the conclusions which follow for the mind of the planning individual from the given premises. When we deal, however, with a situation in which a number of persons are attempting to work out their separate plans, we can no longer assume that the data are the same for all the planning minds. (93)

Sunday 25 September 2011

THE STATE OF EQUILIBRIUM: Historical Antecedents of ‘Supply-Side Economics’ in the Austrian School – Part 1

Supply-side economics treats all taxation as a “distortion” of the “free market economy” because they amplify the “re-distributive” role of the State (just as detrimental welfare effects of capitalist industry are seen as “externalities” – instead of “internalities”). Here is the first instalment of a much larger study I am conducting on the Hobbes-Smith-Schopenhauer-BohmBawerk-Nietzsche-Weber-Hayek-Schumpeter theoretical genealogy and, on the other side, on the Rousseau-Ricardo-Hegel-Marx-Lenin-Keynes line. Wish me luck!
In classical and neoclassical economic theory the capitalist economy was seen as founded entirely on the operation of the “self-regulating market”. It was “the market” which, by assuming the formal equality of all economic agents, ensured the orderly, “balanced”, “equilibrium” (also in German, Gleichwichtigkeit – ‘equal-weight’) of the economy by allowing the equi-valence of producers’ supply with consumers’ demand. In this institutional universe, “growth” was seen as a quantitative phenomenon reliant on the horizontal expansion of the market. The factors of “growth” were seen as “external data” or “disturbances” (Storungen) that could jolt the economy out of its “equilibrium” but only temporarily. Implicit in this vision of “equilibrium” was the assumption that the “market price mechanism” would ensure the return of the economy to the pristine “state of equilibrium” with optimal allocation of resources – which is what made the market mechanism “self-regulating”.
Even scientific-technological processes were interpreted as “exogenous” factors, as independent and autonomous “progress” extraneous to the functioning of the capitalist economy and therefore outside the purview of “economic analysis”.
Classical Political Economy had stressed the “quantitative” importance of “wealth-creation” by focusing on the subservience of the market to the process of production and distribution of objective (yet ultimately metaphysical/essentialist) “value” in the classical “labour theory of value”. But the  neoclassical revolution shifted the focus of “economic enquiry” even further away from the sphere of production by substituting “value” with the “subjective” exchange of “endowments” through the “market mechanism” that alone, “by definition” (tautologously, in Hayek’s definitive analysis) ensured the optimal allocation of these “endowment/resources” according to (metaphysical) “marginal utility”.
The formal legal “equality” of market participants and the effectiveness of the market price mechanism to indicate their free consumer choices allowed the “homologation” of the Economic (scientific-technological Zivilisation reflected in the productive process and its “division of labour”) with the Political (the equitable allocation of value-resources through the self-regulating market). This “homologation” was the supreme social synthesis of Political Economy and the equivalence of its “Law of Value” whereby market prices ensured that the “values” produced were “cleared” in the market and allocated optimally to its participants.
It was also the foundation of the political philosophy of liberalism whereby the “neutrality” of the State of Law (Rechtsstaat or ‘night-watchman state’) restricted its political functions to guaranteeing the individual property rights of its “bourgeois” members as the basis of “free competitive exchange in the (therefore) ‘self-regulating’ market” and to preserve the freedom of expression and faith of its “citizens”.
The market was “self-regulating” and therefore in a state of “equilibrium” so long as the property rights or “endowments” of its “free competitive participants” and, as a corollary, “free competition”, were respected and protected for the simple reason that the “market mechanism” with its “free competition” would then ensure the settlement of the exchange of endowments at “market-clearing prices”.
Assumptions: pre-State “legal rights” and apportionment of property rights to new production/contribution. “Citizens” seen as “individuals” both in their psychological “subjectivity” as expressing “free will” (an assumption shaken by psychological and psychoanalytic as well as ethnographic and sociological research) and, more important, in their “productivity” regardless of the obvious fact that these “individuals” are necessarily linked through the “division of labour” (a fact that is pivotal to Marx’s ‘critique’ of Political Economy). (A corollary difficulty is the State’s role in that part of the “division of labour” that provides educational services to “individuals” for the purpose of later joining the “labour market”.)

Crisis And Co-Ordination

Friends who visit this site will know is that what we are attempting to do here is to understand how capitalism works by looking beyond its "empirical" manifestations. Capitalism is not simply an "economic" system, a means or method of "producing" social wealth and therefore of re-producing our society. Rather, it is a "social system" that affects every aspect of social life at least in the sense that it has the clear and ineluctable 'tendency' to subsume every aspect of social life to its peculiar mode of production.

You will recall our previous discussion of absolute and relative exploitation. Parallel to these different methods of value extraction, capitalists have also specific forms of "subsumption" of society that reflect their particular modus operandi. Start with the basic notion of the "market". We have tried to show here by analysing several theoretical approaches to the notion of "free self-regulating market mechanism" that this is an "aporetic" concept because the minute one tries to implement practically a "market mechanism" based on "free competition", the very "rules" required to ensure that such "competition" is "free" and that secondly the market may be "self-regulating" - those very "rules" will either allow the abolition of competition with the market ending up in "monopoly", or else they will have to define "competition" in such a way that it is no longer "free". In other words, the notion of "free competition" is aporetic because "competition" will not remain "free" for very long if "the market" is truly "competitive - and, on the other hand, the market will not be capable of "self-regulation" if its "competitors" are truly "free" - and this for two reasons: the first is that "free competitors" will not have "converging or compatible" aims - so that "competition" will need "rules" and therefore it cannot be "free"; and secondly even allowing for "rules", unless they "restrict" competition (to, say 50% "control" of a "market" by any one competitor), then the market will implode by falling under the control of a monopoly - at which time it will cease to be a "market" (the notion of "monopolistic market" is contra-dictory or "oxymoronic" while that of "free market" is pleonastic because "market" means that there is some form of "competition" at its very beginning).

These analyses may seem at first to be far removed from reality and especially the hurly-burly of these “critical” times for capital. But if you look for example at the blunt warning that Tim Geithner has issued to his European counterparts this week-end in Washington at the IMF meeting, you will see that he is asking European decision-makers to hang together because otherwise they will most certainly hang separately! Geithner understands that the only way to unite a capitalist elite is not out of a feeling of human solidarity but rather to meet an “external threat” – which is conveniently posed by the various gangs of robber barons that finance and industrial capital have spawned around the world in their search for ways to beat the demands of more emancipated workers in Western countries. And the reason why this mist be so is, once again, that as we have seen “capitalist co-operation” is essentially an oxymoron in the absence of a common enemy to beat: - either the domestic working class or other opposing capitalist elites!

Friday 23 September 2011

Schopenhauer’s Ethics and Weber’s “Protestant Ethic”

Weber’s Protestant Ethic still indirectly glorifies “labour” as at least one motor of wealth-creation in tracing “the spirit of capitalism” to the Christian notions of human expiation of the original sin – “ora et labora” (work and pray). Yet although “puritanical parsimony” is one means (“saving”) of accumulating wealth, it is by no means a method of “creating or producing” wealth. This is the side that Weber neglects but that is present in Schopenhauer and is insightfully theorized by Bohm-Bawerk. For Weber’s Calvinists and Puritans, wealth is a sign of “Beruf”, of blessedness and active “divine calling”. But the Beruf, even in the religious specification of Entsagung, of “renunciation” and Askesis, does not yet sever decisively the theoretical link between labour and accumulation which is absolutely vital to the development of a specifically “capitalist ethic” freed from the “moral theology” of an obsolete Judaeo-Christian eschatology. Labour is still “consumption of the world” in that it pro-duces greater wealth; it is not deliverance from the world and from wealth; it is not “resignation”. Labour is still intimately connected with wealth-creation (see Weber, ‘PE’, beginning of section on “Asceticism”).

Only by severing the nexus between labour and “utility” or wealth-creation will an economic theory emerge that will relegate “labour” and the working class to their proper place in the market economy. Above all, only by severing the social/teleological osmotic link between labour and wealth will it be possible to replace the Judaeo-Christian “Beruf”, so burdened with religious tenets and “moral theology” (Schopenhauer’s critique of Kant and Hegel), with the “amoral, effective Entsagung” that leads to the Unternehmergeist! This is the “specifically bourgeois economic ethic” that Weber was seeking at the end of Die Protestantische Ethik but incorrectly understood. The new link that needs to be theorized is that between “saving as renunciation of consumption” and thence as “deliverance from the world” (Schop), on one side, and “utility” and “interest” on the other.

Thus, Weber was unwittingly reprising Smith’s theory: - division of labour as wealth-creation. Wealth is created through growing labour productivity enabled by exchange and therefore “specialization”, that is, through the pro-duction of more goods for exchange and  the use of fewer goods for consumption. This “growth of productivity” through exchange is the source of wealth. Thus wealth is a “saving of labour disutility” and consequent greater command of “utility-for-exchange”. In this perspective, wealth is the “squeezing out” of greater output from existing means of production or resources. By consuming less for himself, the worker can exchange more. Otherwise, the worker can be more productive by specializing, producing more and consuming less in the exchange. Smith assumes constant/fixed and exogenous technology. Smith’s theory does not allow for “innovation” or the role of wealth as “delayed consumption”. Thus, “consuming less for oneself” becomes “producing wealth through exchange by producing more”. Weber points this out as an aspect of “Asceticism” in ‘PE’, p161. It can be seen how this “protestant work ethic” rationale preserved entirely the link between labour and wealth that could no longer serve the bourgeoisie after the initial phase of accumulation.

What for Smith and the Puritans – and for Weber? - was wealth-creating division of labour, Hegel perceived in Smith’s “pin production” as the antithesis of productivity that does not enrich the worker! This occasioned the diatribe between Mandeville and Smith where the former could see that “the Publick” that benefitted from “Private Vices” was not the working class. And Mandeville took delight both in the ferity of humans as well as in exposing the hypocrisy of enrichment and immiseration for a divine purpose. But Mandeville still shared the condemnation of “laziness”, of the charity halls, not for ‘Deistic’ reasons related to “the work ethic”, but for the cynical realization that they invited work-shirking.

In the negatives Denken, “wealth” stands against and is the ob-jective of (Gegenstand – op-posite) work, not its pro-duct, just as the Body and the World are the “objectification of the Will”, its “variance” or “resistance” or “polarity” or source of “strife”. Wealth (capital) employs labour; labour consumes wealth to earn its keep, to produce more wealth. But the “active” part is wealth, which is “stored consumption” or “utility”, whereas labour is the “passive” (passio, suffering) part, the part that “consumes wealth” and in consuming affirms “the world”. Wealth is “consumed” after it has been “saved”. Wealth is “delayed consumption”. Piercing the veil of Maya, seeing through the illusion of “striving” and “labouring”, the mortification of the body, the abnegation of the Will is the “renunciation” of consumption and the preservation of wealth.

 As we noted above, these features are lacking in Weber. Above all, the “mundanity” of wealth, its evanescence, is left unexplained and is yet another “inconsistency” in the “Protestant ethic” as a rationale for accumulation as an end in itself in the “spirit of capitalism”. By contrast, this “evanescence” is the very centerpiece of Schopenhauer’s “system”, the “Unwirklichkeit der Erscheinungswelt” (unreality of the evanescent world) and of the “will to live” (Simmel, ‘Schop. Und Nietzsche’, pp29-30).

Thursday 22 September 2011

The Sell-Off

Friends who are watching in horror the "sell-off" in global equity markets will recall that we predicted this only a few days ago if the Fed came up with anything less than full-blown QE3 - and that is what is happening even as we write. We also told PIMCO's Bill Gross that his advice to sell greenbacks was totally foolish - and we were right again, as you can see!

But monetary policy will not suffice unless central banks can threaten "investors" with rising inflation, because then and only then will they realise that placing capital in treasuries will not save them and debtors will be encouraged to invest and spend again.

These are not decisions that can be left to "private investors" for the simple reason that only action by "the collective capitalist" (the State) will prove that "we have nothing to fear but fear itself". That (!) is "Rooseveltian Resolve"! Of course, the other leg of such US government and central-bank activism would be to lower the dollar and pressure the Chinese dictatorship into abandoning support for its State-Owned Enterprises and expand domestic demand through higher wages and higher exchange rate for the yuan. See this Stratfor link:

Between Love and Evil: The Misadventures of Economic 'Science'

Thematically at least, one of the most impressive and instructive films I ever saw is Werner Herzog's version of Nosferatu, The Vampyr. The unsuspecting inhabitants of a Germanic township along what seems like the Danube river are infected with the bubonic plague virus when a boat ferrying Nosferatu the vampire with his loyal servants, the rats that carry the plague virus, docks in its tiny port. Nosferatu is pursuing a lady whose photograph he saw when her unfortunate husband visited his castle on a business visit and has already infected her husband with vampirism by drinking his blood. The lady, who for our purposes personifies Love, has been warned of the imminent Evil visiting her fragile world and tries to alert the town's authorities about its source - the Count Nosferatu who has just arrived with his boat. But the municipal scientist dismisses her warnings contemptuously because - as everyone knows - there is no "scientific" explanation for Evil.

Yet we know that Evil exists! Science, you see, can fail us when we most need it. Its "rationality" is its very "limit" - because it cannot account for human motives and aspirations and intentions. The very fact that so-called "economic science" takes for its starting point as vapid and "metaphysical" a notion as "marginal utility" offers ample proof of its utter irrelevance to the life of societies and of our world!

As it turns out, the Lady in Nosferatu manages to detain the Count until after sunrise and therefore kill him: but her Love prevents her from destroying her own husband, who then survives her and is free to ride out into the wilderness and infect more townships with his pestilential virus! The moral is: neither Science nor Love can free us from Evil: we must be ever vigilant with human motives.

If you look at the Paul Krugman piece linked below, you will find that the Nobel Laureate (the Scientist) from the height of his immaculate "humanistic" motives, is unable to explain why his fellow "economic scientists" are repeating the same mistakes their predecessors made in the Great Depression. What Krugman does not com-prehend is that capitalism has absolutely nothing to do with "Science" where its "interests" are concerned: and those "interests" have everything to do with "profits" - in other words, with the command of dead objectified labour (capital) over the living labour of workers, of the people who pro-duce the wherewithals for the reproduction on an expanded scale of the society of capital. To continue to exist as "capital" this dead objectified labour needs to be able to be "exchanged" for the living labour of workers, without which it cannot be "valourised" and be used to command even more living labour. The meaning of "profits" is all here!

Until he realises that capitalist society is necessarily and fundamentally antagonistic, Krugman will forever keep wondering "why they just do not understand"!