Commentary on Political Economy

Saturday 28 July 2012

Balance-Sheet Recessions: The Systemic Risk of Bourgeois Rule

A "balance sheet recession", as the phrase coined by Richard Khoo suggests, is a recession precipitated by the need of capitalist firms that have "over-leveraged" their balance sheets in the attempt to boost revenue to "de-leverage" once the expected revenue on the leveraged part of the investment falls to levels that (a) are or will soon be unprofitable and (b) will therefore result in a revision of the carrying value of the leveraged assets and (c) will bring about a loss on the initial investment that was "leveraged" once those assets are "marked-to-market". This is the well-known "Wile E. Coyote moment" when capitalists who had "artificially" or speculatively over-bid their investments finally realise that their "fictitious capital" held less "value" than they imagined.

As we have explained often in this Forum, what so-called "economic scientists" - including even the more liberal progressive types such as Paul Krugman - fail to explain is what is the real relation between the "nominal price" of investment assets and what is their "real value". Understanding the dif-ference (the different practical political effect) of these two notions is vital to understanding how profoundly and absurdly "ideological" the notion of "balance-sheet recession" is. Because what this phrase indicates is that somehow the current recession of capitalist finance is caused by "accounting irregularities" or "mistakes" rather than by the "systemic" nature of capitalist enterprise and finance - that is, its need to control politically as much living labor as possible through the repressive "exchange" imposed by the capitalists' violent control of "dead labor" - of social resources.

The stories that I have appended here, one from Martin Wolf at the FT on balance sheet recessions, another by James Surowiecki at The New Yorker on the Libor scandal and fraud, and the last one from the Times about the widespread violence in American (now spreading rapidly to the "civilised" world of the bourgeoisie, including European cities from London to Marseille, and then to the peripheries of Egypt and Syria) - these stories trace, even in a thematic way, the obvious but unnoticed link between (a) capitalist speculation, (b) the element of fraud and dishonesty and corruption that it carries inevitably, (c) the impotence of collective capitalists (our "governments") to police it and, finally (d) the growing and rampant "law-lessness" of the entire capitalist "system" that poses....yes, "systemic risks" to the very survival of our society - "the society of capital". As Weil notes in the final story selected here: "If big capitalist enterprises are too big to fail, then they are too big to exist!"

Friday 27 July 2012

Why "this time IS different": Martin Wolf, the Reinharts and Rogoff

Martin Wolf's polite rebuttal of the Reinharts (Carmen and Vincent) and Rogoff thesis of public finances based on their sardonic reprise of the "this time is different" theme is as encomiable as it is principled. I remember that two years ago, even before Paul Krugman embarked on his "confidence fairy" pieces in The New York Times, I wrote a lengthy piece at the Wolf Exchange with the title: "This Time IS Different", wherein I argued that the end of easy profits from Chinese investment growth and the reflux of capital back to the US (the end of "the Great Moderation") meant that "this time was truly different" because the usual "capital strike" or "sudden stop" of spendthrift governments would not occur in the US - for the simple reason that the profits coming out of China had "absolutely nowhere to go!", except into US treasuries, that is, to finance the US public debt.
With less politeness than Wolf, I suggested at the time that the Reinharts and Rogoff were doing nothing less than inappropriately regurgitating the repressive economic credos that the Western bourgeoisie has now turned into...."economic science"!

Tuesday 24 July 2012

Freedom and Necessity - Carl Schmitt and the Exception

A “theory” is an explanation of life and the world that attempts to encompass them in their “totality” by “con-necting” their “parts” in a “systematic” manner that is internally consistent and that, through this “consistent nexus rerum”, achieves the adaequatio rei et intellectus of Scholastic fame. It follows that a theory must connect the relationship of the parts to one another in a manner consistent with the “systematicity” of the whole. Consequently, regardless of the content of the theory, the con-nections between parts and of the parts in their totality must be “necessary”. This “necessity” removes any “freedom” that the parts may have had in relation to the totality in such a manner that the theory admits of no “exception” that is not re-conducible to or con-sistent with the totality and its “systematicity”.

This logical notion of “freedom” as the opposite of logical necessity has nothing to do with the political notion of freedom. It is instead the opposite of “contingency”, and in fact ought not to be called “freedom” at all! Freedom is a political notion – the opposite of “coercion” (Arendt in ‘LotM’). Once the notion of “freedom” is reduced to the opposite of logical necessity, then it becomes mere “contingency” and is reduced to an “onto-logical” problem. The fact is that, as we are demonstrating here, there is no such thing as “logical necessity” so that all “truths” are “contingent”. But the fact that “truth” can be understood as “logical necessity”- that the “necessity” of logic is what makes it “true” - and that “freedom” can be mistaken for “contingency” means that “truth” or logical necessity can be abused or be used instrumentally for the purpose of political coercion! By this process, “freedom of the will” can be mistaken for a “telos” that, by positing the “systematicity” of life and the world as a “totality” becomes a quest for “freedom from the will” – which is what the negatives Denken claims whilst at the same time, by denying the existence of “freedom” in a political sense (because it understands freedom only ontologically), denies the possibility of political freedom or else reduces it to contingency, to superfluity (Sartre’s “de trop”, Heidegger”s de-jection and Dasein as pro-ject). Freedom is understood then as “universal Eris”, as total conflict so that freedom is no longer a function of the will but the will becomes a function of “freedom” understood as cosmic “contingency” (Schelling).

Arendt correctly distinguishes between freedom (political) and contingency (ontological), pointing to their discrete opposites – coercion or necessity, and logical necessity or “irresistibility”. But she fails to see that there is nothing “irresistible” or “true” about logico-mathematics and science, that these are contingent, and that therefore these (contingent, arbitrary) conventions can be utilized for the purposes of coercion by erecting “measurable frameworks” of conduct (institutions) that force human conduct and choices into “measurable” channels or behavioral straitjackets. The “irresistibility” of mathesis can ec-sist only as a value, as “truth”, and therefore as a “will to truth” that is “internalized” to coerce human behaviour. This is the “necessity” of mathesis – precisely, a “restriction” or channeling of human freedom understood not ontologically (as contingency, which is categorically not, and can-not be affected by mathesis) but rather politically.

The negatives Denken understands “free-dom” as the battleground of conflict between wills. For Weber, for instance, the individual will acts freely if it acts “rationally”; and “rationality” is defined as the will’s choice of adequate means in pursuit of its own ends. This “choice” the will makes is therefore con-ditioned by the choices of other wills in conflict with it. In essence, for Weber, rationality is the game-theoretic strategy that is chosen by independent and conflicting wills freely pursuing their irreconcilable ends or wants whose provision is scarce. The “freedom” of the will is de-fined not intrinsically as in the ‘Freiheit’ of German Idealism but rather instrumentally in terms of the relationship of given means to projected ends. It is “free-dom” in the sense of “room to manoeuvre” (Ellenbongsraum) - to maneuvre against other wills, that is. Thus, there can be no “freedom of the will” in the objective genitive. It is the will that is a function of free-dom, not the other way around – which means that the “freedom of the will” has no positive universalistic telos or inter esse, but is rather the op-posite, the contrary of this inter esse. For the negatives Denken there is no “freedom” in an ab-solute, idealistic sense: freedom exists only as “contingency”, as the opposite of “necessity”, not of “co-ercion” - onto-logically, not politically! And insofar as there is freedom, as in Schopenhauer or Heidegger, this ec-sists only as “transcendence”, as a “leap of faith”, as “intelligible freedom” (even in Kant), as “astute theology” (note the etymological link between “theory” and “theo-logy”).

The negatives Denken replaces the Idealist Freiheit which, as we have seen, turns by reason of its “systematicity” into a quest for “freedom from the will”, from its “arbitrariness”, with the conversion of this teleological “freedom” into an instrumental “free-dom”, one that is intended not as a telos, as an aspiration, but rather as its opposite, as “contingence”, a mere lack of conceptual or material “necessity”; and thus it conceives of the Will as an antagonistic “universal condition”, as the obverse of Kant’s Dinge an sich. The de-struction of the telos of “freedom” invites and elicits the destruction of any “system”, of any teleological “rule” by means of “the exception”. For the negatives Denken the exception is not what con-firms the rule, not Hegel’s negation that is meaningfully re-absorbed by the “negation of the negation”. No such “repechage” is possible. Instead, it is the exception that determines the very essence of the rule, the “truth” of the system, by de-fining its limits. Schmitt quotes from Kierkegaard (in PT, p15): “The exception explains the general [the rule, the system] and itself.” Yet if the exception “explains the general”, it can do so only if it “de-structs” the general or rule or system – if it negates the “system” as a “totality”, as “truth”. Any attempt to erect the system to a universal application – as the Sozialismus seeks to do in politics – will result only in the suppression of any “free-dom” that remains beyond the grasp of the system and within the purview of the exception. Schmitt writes (p15):

It would be consequent rationalism to say that the exception proves nothing and that only the normal can be the object of scientific interest. The exception confounds the unity and order of the rationalist scheme.

Here the negatives Denken can conceive of the will only as a destructive force that “works” or “uses” the world only in the sense of “consuming” it – because the opposite, the will and its Arbeit as the “creation” of “wealth”, would entail the possibility of a “common-wealth”, of an inter esse common to all wills, and not merely a subjective “greed-dom” or appetitus. This de-struction of “truth”, of the telos of freedom, entails also the de-struction of Reason and the Ratio as the summum bonum of humanity, as the Platonic Good. In this perspective, not only can the Logic not be a “science” as in Hegel and even in Kant where synthetic a priori judgements are made “possible” by Reason, but it becomes a mere instrument of the intellect – this last understood as mere perceptions or sensations (Empfindungen) in accordance with causality and the principle of sufficient reason. Yet in much of the negatives Denken, from Schopenhauer to Weber for instance, the attachment to “science and rationality” (even when conceived as instrumental) remains steadfast. We have seen that Nietzsche ridicules this Schopenhauerian atavistic attachment to “scientific and logical rationality”, although it was his “Educator” who first insisted on the purely “instrumental”, non-theological, ontological status of logic (see G. Piana, ‘Commenti su Schopenhauer.’, 2). Schmitt remains attached to this “juridical” notion of the exception:

That a neo-Kantian like Kelsen does not know what to do with the exception is obvious. But it should be of interest to the rationalist that the legal system itself can anticipate the exception and can “suspend itself”….But how the systematic unity and order can suspend itself in a concrete case is difficult to construe, and yet it remains a juristic problem as long as the exception is distinguishable from a juristic chaos, from any kind of anarchy…From where does the law obtain this force, and how is it logically possible [m.e.] that a norm is valid except for one concrete case that it cannot factually determine? (p15)

We saw earlier in our Weberbuch that Bobbio moves the same objection to Weber and Kelsen against the neo-Kantian determination of “the Norm” and its sociological implications – the fact that “Norm” must include also the notion of “apparatus” or “coaction” wherewith it can be en-forced. This calls into question the notion of “the State”, which Schmitt so far does not explain. For the state of exception is one that, like the Hobbesian and Schopenhauerian and Nietzschean, calls into question the entire socio-ontological foundation of the state and society, and not merely the concept of a “juridical legal order”. Schmitt correctly identifies the two moments of the legal order – the norm, what gives “legitimacy” to the legal order, and the decision, which gives effect to the “legal order” when it has “legality”. But the two moments – legitimacy and norm on one side and legality and decision on the other – remain distinct and separate to the point that they are aporetic and irreconcilable: this is the reality that “the exception” and the state of exception expose, regardless of whether the “state” of exception is an organized state or a state of anarchy! By pre-serving the conceptual legitimacy of “the state” as an entity Schmitt has a-voided the question that he had posed himself originally: - that is, how can a “state” exist as the foundation of a legal order founded on a “norm” when in fact the exception shows that it has no socio-ontological foundation?

A jurisprudence concerned with ordinary day-today

questions has practically no interest in the concept of sovereignty.

Only the recognizable is its normal concern; everything

else is a "disturbance." Such a jurisprudence confronts the extreme

case disconcertedly, for not every extraordinary measure,

not every police emergency measure or emergency decree, is

necessarily an exception. What characterizes an exception is principally

unlimited authority, which means the suspension of the

entire existing order. In such a situation it is clear that the state

remains, whereas law recedes. Because the exception is different

from anarchy and chaos, order in the juristic sense still prevails

even if it is not of the ordinary kind. (PT, p13)

Let us recall that even for general equilibrium theory in economics it is those “disturbances” or “noise” that challenge the validity of the theory. Schmitt does well to challenge “normal jurisprudence” (legal positivism in large part). But he is wrong to insist on the “legality” of the state of exception and of its political State – because the exception challenges both “normality” as well as its enforcer, the State, whose entire legitimacy and legality is destroyed by the exception!

The existence of the state is undoubted proof of its superiority

over the validity of the legal norm. The decision frees itself from

all normative ties and becomes in the true sense absolute. The

state suspends the law in the exception on the basis of its right

of self-preservation, as one would say. The two elements of the

concept legal order are then dissolved into independent notions

and thereby testify to their conceptual independence. Unlike the

normal situation, when the autonomous moment of the decision

recedes to a minimum, the norm is destroyed in the exception. (p13)

In fact, more than just the norm is “destroyed” by the exception: the legitimacy and legality of the legal order and of its State is destroyed as well – and our task is to find out how this can be so and why.

The exception remains, nevertheless, accessible to jurisprudence [14]

because both elements, the norm as well as the decision, remain

within the framework of the juristic.

It would be a distortion of the schematic disjunction between

sociology and jurisprudence if one were to say that the exception

has no juristic significance and is therefore "sociology." The

exception is that which cannot be subsumed; it defies general

codification, but it simultaneously reveals a specifically juristic

element - the decision in absolute purity. The exception appears

in its absolute form when a situation in which legal prescriptions

can be valid must first be brought about. Every general norm

demands a normal, everyday frame of life to which it can be

factually applied and which is subjected to its regulations. The

norm requires a homogeneous medium. This effective normal

situation is not a mere "superficial presupposition" that a jurist

can ignore; that situation belongs precisely to its immanent validity.

There exists no norm that is applicable to chaos. For a

legal order to make sense, a normal situation must exist, and

he is sovereign who definitely decides whether this normal situation

actually exists.

All law is "situational law." The sovereign produces and guarantees

the situation in its totality. He has the monopoly over this

last decision. Therein resides the essence of the state's sovereignty,

which must be juristically defined correctly, not as the monopoly

to coerce or to rule, but as the monopoly to decide. The exception

reveals most clearly the essence of the state's authority. The

decision parts here from the legal norm, and (to formulate it

paradoxically) authority proves that to produce law it need not

be based on law. (pp13-4)

The fact that a “legal order” requires the “legitimacy” of the norm and the “legality” of the decision does not mean that, once the exception obtains, this “exceptional decision” remains “within the framework of the juristic”, because that begs the question of why “the juristic” brought about a “situation” in which the existing legal order could be “suspended” to allow “the decision on the exception” on which, Schmitt tells us, sovereignty is founded. “Sovereignty”, but not necessarily “authority”! This is why Schmitt is wrong to affirm as he does above that

[t]he exception reveals most clearly the essence of the state's authority. The

decision parts here from the legal norm, and (to formulate it

paradoxically) authority proves that to produce law it need not

be based on law.

On the contrary, we say, the decision on the exception actually puts in question (!) the State’s authority because the State could not have come to be a “State of exception” had its “authority” not been seriously undermined in the society governed by its legal order! The fact that Schmitt feels impelled to introduce without further explanation the novel notion of authority “to prove that to produce law [the State] need not be based on law” is further evidence of his confusion on this point.

Schmitt’s analysis of the legal order as characterized by norm and decision -  which in turn gives rise to the division of jurisprudential doctrines into normativist and decisionist – is analogous to our earlier discussion of the notion of “arbitrium” which, in its moment as arbitration, involves an element of “judgement” founded on rational principles, but then in its “arbitrary” moment is characterized by the actual decision which is no longer based on rational principles but rather resides with the actual person (or “will”) responsible for making that decision. Irrespective of how this responsible person is appointed or charged with making a decision, the ultimate arbitrariness of the process cannot be gainsaid. This is the limit of Weberian rationality (discussed by Schmitt on p27), one whose “formal” properties, in the absence of any “substantive” element of human inter esse, must ultimately be founded on irrational principles. This salient point is made quite validly by Lowith in his review of Schmitt’s jurisprudence because Schmitt, unlike Nietzsche, never moves beyond the challenge of “the rule” (the rationalist order or system) and insists instead on the “juristic” nature of the decision on the exception. In other words, Schmitt himself, though challenging normativism and positivism from the “wholly other” of the exception or “disturbance”, simply fails to tackle critically the entire notion of law and of the legal order. Schmitt understands “the political” in a Hobbesian sense – the state of nature as a status belli in which the State does not play a “neutral” role but an interested one that includes its self-preservation. But the elision of the complex transition from individuals to association to “State” or res publica or common-wealth is never outlined or even tackled by Schmitt who simply hypostatizes the State uncritically as an “Idol”. This is the basis of Lowith’s critique, although he focuses on the role of the “individual” in any association that becomes a legal order with a State.

El puro decisionismo, tal como fue defendido de manera clásica

por Hobbes, presupone un "desorden" que sólo puede convertirse

en un orden por medio de la decisión; esta decisión aparece, pero ahora

también ella misma, como una decisión para una "vida comunitaria"

ordenada, cuya expresión jurídica es el pensamiento del orden

y ya no el pensamiento en el sentido de mera decisión.83 (p77 in ‘Heidegger’)

In what Schmitt calls “the age of neutralization”, the terminus ad quem of romanticism is to attain the realization of “the system” so as to eliminate conflict from social life and with it to neutralize “the political”. This is the aim of all scientism and rationalism. But by “the political”, Schmitt means “conflict”, its ineluctability even and especially in the state of nature. Hobbes saw the political as the way out of the state of nature, which he conceived of as pre-political. His starting point was the in-dividuum, just like the point in Euclid, and its self-interest, which consisted principally of the a-voidance of death and the pre-servation of life. This is the foundation of the “common weal and therefrom, mechanically or more geometrico, of the common-wealth, of the State. Schmitt instead starts with the State as an interested party in what is the political state of nature, which, contrary to Hobbes, does not begin with individual self-interest but rather with the division of humanity into “friends and foes”. For Schmitt therefore the state of nature is not pre-political, but rather the very essence of the political. (Cf. the famous review of Schmitt by Leo-Strauss.)

This is why the State is not and cannot be “wholly other” or “neutral”, like the Protestant God or the State of Law of Political Economy. The State does not stand, as in Hobbes and the liberal tradition, au dessus de la melee: it is an interest in society; its interest is the preservation of itself as “state”, as the legal order. And this preservation depends on a political “decision”, on sovereignty that is not assigned by law but that is rather the very “content” of law.

To be sure, Protestant theology

presents a different, supposedly unpolitical doctrine, conceiving

of God as the "wholly other," just as in political liberalism the

state and politics are conceived of as the "wholly other." We

have come to recognize that the political is the total, and as a

result we know that any decision about whether something is

unpolitical is always a political decision, irrespective of who decides

and what reasons are advanced. This also holds for the question

whether a particular theology is a political or an unpolitical

theology. (p2)

As the defensor pacis (Marsilius), the State is not the pro-duct of the con-vergence or con-vention of individual self-interests as found in the state of nature (the degree zero of politics). Rather, the State is a direct product of the conflict, of the di-vergence of these self-interests – so that the State remains conceptually tied to the state of nature – it does not transcend it. There is no “meeting of the minds” or wills upon which the State can be founded; rather, the State is the sovereign that can preserve social peace not by “mediating” or “reconciling” the conflicting interests of the state of nature, but rather by ensuring that “friends” keep the “foes” in check. The State is not a pro-duct of law, and thence sub-ordinate to law. Instead, the State as sovereign determines the “content” of the law, it does not “ascertain” it; it does not “find” it; it “creates” it. This is contrary to the legal positivism of Kelsen and Krabbe that Schmitt sternly eschews:

[For Krabbe, t]he state is confined exclusively to producing law. But this

does not mean that it produces the content of law. It does nothing

but ascertain the legal value of interests as it springs from the

people's feeling or sense of right. Therein resides a double limitation:

first, a limitation on law, in contrast with interest or welfare,

in short, with what is known in Kantian jurisprudence as "matter";

second, a limitation on the declaratory but by no means constitutive

act of ascertaining. I will show that the problem of law

as a substantial form lies precisely in this act of ascertaining. (PT, p23)

The genius of Hobbes was to posit the alienation of personal freedom (the freedom of the will) for the sake of the preservation of life: this last is what supplies the con-ventum, the agreement on which the State as “common wealth” can be erected consistently – the “system” or “order” or “freedom from the will”. This is the “truth”, the rationalist inter esse of Hobbes’s political theory that is exalted in all the “liberalist” interpretations of his theory (starting with Leo Strauss). But for Schmitt, no such inter esse exists or can exist – because the State is not super partes; it is a “partisan” that de-fines the political boundary between friend and foe, – a boundary that is absolutely inescapable not merely in foro externo, with regard to other, foreign States, but also and above all with regard to the conflicts internal to the “state”, in foro interno. And herein lies the paramount importance of “the exception”. The State, or the sovereign, is “he who decides on the exception”. This “de-cision” is – as I now style it – an incision in time: it is a pivotal point that “arbitrarily”, not rationally or “systematically” or “formally”, founds the battleground of politics and thus protects and preserves the social peace. Protection that must be traded for obedience: – not (!) in a “con-sensual” manner; only in an “authoritarian” fashion.

Among the newer representatives of association theory is Kurt

Wolzendorff, who has tried to use the theory to solve "the problem

of a new epoch of state”. Among his numerous works,'^ his last

is of the greatest interest here. Its starting point is that the state

needs law and law needs the state; but "law, as the deeper

principle, holds the state in check in the final analysis." The state

is the original power of rule, but it is so as the power of order,

as the "form" of national life and not an arbitrary force applied

by just any authority. What is demanded of this power is that

it intervene only when the free individual or associational act

proves to be insufficient; it should remain in the background as

the ultima ratio. What is subject to order must not be coupled

with economic, social, or cultural interests; these must be left to

self-government. That a certain "maturity" belongs to self-government

could, incidentally, make Wolzendorff’s postulates

dangerous, because in historical reality such historical-pedagogic

problems often take an unexpected turn from discussion to dictatorship.

WolzendorfF's pure state confines itself to maintaining

order. To this state also belongs the formation of law, because

all law is simultaneously a problem of the existence of the state

order. The state should preserve law; it is "guardian, not master,"

guardian, not a mere "blind servant," and "responsible and ultimate

guarantor." Wolzendorff sees in the idea of soviets an

expression of this tendency to associational self-government, to

confining the state to the "pure" function that belongs to it.

I don't believe that Wolzendorff was aware of how close he

came with his "ultimate guarantor" to the authoritarian theory

of the state, which is so completely antithetical to the associational

and democratic conception of the state. This is why his last work,

compared with those of Krabbe and other representatives of the

association theory mentioned, is particularly important. It focuses

the discussion on the decisive concept, namely, that of the form

in its substantive sense. The authority of the order is valued so

highly, and the function of guarantor is of such independence,

that the state is no longer only the ascertainer or the "externally

formal" transformer of the idea of law. The problem that arises

is to what extent, with legal-logical necessity, every ascertainment

and decision contains a constitutive element, an intrinsic value

of form. (PT, pp25-6)

It is the “maturity” of the “association” (the Gemeinschaft of Tonnies, Gierke) that Schmitt disputes. Only the State, by “protecting” its “friends”, can ensure that its “foes” do not subvert the legal order. The “formal” or “normative” (neo-Kantian) approach to the legal order can be counterproductive or even self-destructive when its “formal guarantees” (Constant) are exploited by the “foes” of the State so as to undermine the authority of “the ultimate guarantor”, the State. It is at that precise stage that the State must declare a “state of exception”, suspend the existing legal order, and take all necessary actions to protect its “friends” and re-establish a fresh legal order or restore the old one. There is no neutrality in the State: the State must decide when a “state of exception” exists. This “exception” and the “decision” that enacts it challenge the “normative” approach to law and the legal order by ex-posing the “political” or substantive rather than “jurisprudential” or formal foundations of all legal orders.

The objections that those most erudite liberal critics of Schmitt, from Leo Strauss to Lowith, move to his theory of politics all presume the existence of a Ratio-Ordo that legally-logically – “necessarily” – requires the State to be subordinate to “the law”, whose “content” is then supposed to “emerge” or “spring” from the “community”. Yet, if this comunitas actually existed, if its truth were real, then there would be no need of a “State” in the first place! Contra Schmitt, however, it can be said that he fails to explain how a State can come into being at all! Yes, indeed: a “decision” may be “auf Nichts gestellt” – “be taken out of nothing”, that is, be the product of pure arbitrium -, but not a “State”, because a State is composed of “in-dividuals” whose self-interests must somehow converge so as to form a “friend-ship”, a group of “friends” opposed to their “foes”: and this con-vergence or conventum, must have a “con-ventional” basis that as such can be recognized by all parties to it. Schmitt makes the fundamental error of thinking that there can be an “intrinsic value of form” (see above), that form and substance can meet in the “decision” because the decision is “exceptional” with respect to what is the “normal” legal order, and seeks to preserve it. But if this were correct, then it would be the “normal” that explains the “exception”, and not the other way around as Schmitt had argued earlier! His notion of “decision” is simply too formal, it lacks sub-stance, and therefore cannot provide a proper account of the State – even one that challenges the ratio or telos of its classical theories.


Friday 20 July 2012

Latest Comments on Martin Wolf Exchange

Excellent analysis as usual from our much-admired Martin Wolf, whom I salute after a long absence due to a ban imposed on me by the FT, and also thank because it was his 'Exchange' that induced me into a colossal intellectual enterprise that so far has comprised a book on Nietzsche, one on Weber, and one on a new immanentist social ontology. (I hope to send these to him via email soon together with study on Keynes and Minsky that I plan to complete before long.) 
Wolf is entirely right to call mathematical equations (or accounting identities) "tautologies" because the content of a mathematical equation is independent of the abstract entities that stand on either of its sides. The real practical effect of an equation is to identify the "arrow of causation" upon which our actions can be founded to affect the relative quantities involved to a desired or projected level.
And this is where the relationship between "private" sectors of the capitalist economy and its "public" sector (that of the State as "collective capitalist") comes in. As I have tried to establish in several contributions on my blog at 'The Economics Forum', the most significant aspect of the theories developed by Keynes and later Minsky is that the State intervenes to ensure that the "public" sector makes up for any difficulties that the "private" sector may experience in terms of profitability, which is defined as the ability of the owners of capital to impose the wage relation on workers at a stable level of inflation. Whereas Keynes's greatest fear was that of capitalist stagnation, Minsky's financial instability hypothesis focused on the political unwillingness of government administrations to upset the existing financial arrangements (from which stems that "balance sheet recession" Wolf mentions) in favour of debtors ("households") or workers) as against creditors ("firms" or capitalists). This is the reality that lies behind those mathematical tautologies - the Gordian Knot in need of an Alexandrian sword to be untied.)
Wolf is entirely right therefore to insist on the fact that it is the State or "public" sector (public deficits) that "reacts" to the level of profitability of the "private" sector so as to ensure its viability at preferably non-inflationary levels - because inflation destroys the ability of money to serve as a "measure" of the level of social conflict around the money wage. (My erstwhile Cambridge supervisor Bob Rowthorn wrote his best work on this crucial point called "Capitalism, Conflict and Inflation".)
Again, my regards to Martin Wolf and old "friends" that follow his intelligent 'Exchange'.

On a substantive note, Wolf's latest comments suggest that behind "the fundamental laws of arithmetic" - which are not "laws", of course, but simple tautologies as he called them earlier - lie hidden the even more "fundamental" necessities of the distribution of political power which, in capitalist economies, translates into "profitability" - that is to say, the ability of "employers" to "give work" to workers "for a profit" - that is to say, in such a way that those workers need to give up their political rights under the coercion of working for a money wage! This realisation may well solve the apparent conundrum whereby the capitalist economy appears to be a "zero-sum game", a "surplus" for one nation-state is a "deficit" for another. Whether or not it is the "surplus" state that needs to reflate or the "deficit" state that needs to deflate - the relative "need" for either fiscal expansion or austerity - is dictated by the political ability of each capitalist nation-state to control its workers in terms of money wages and therefore of profitability - which is affected of course by the exchange-rate regime (fixed, as in the Gold Exchange Standard, or flexible, as after Bretton Woods) in place at the time in the capitalist world economy.
What I am saying is that the "analysis" here is more political than strictly "economic" (economics is really a "concentrate of politics" - to invert Lenin's erroneous formula - politics that revolves around the "standard of living" of a society); least of all does it have anything to do with "economic science"! "The question is," said Humpty Dumpty, "who is to be master. That's all!"