Economics

"Such terms as communism, socialism, Fabianism, the welfare state, Nazism, fascism, state interventionism, egalitarianism, the planned economy, the New Deal, the Fair Deal, the New Republicanism, the New Frontier are simply different labels for much the same thing."

"What will be the consequences of the ultimate disappearance of private property? Society will take all forces of production and means of commerce, as well as the exchange and distribution of products, out of the hands of private capitalists and will manage them in accordance with a plan based on the availability of resources and the needs of the whole society. In this way, most important of all, the evil consequences which are now associated with the conduct of big industry will be abolished. There will be no more crises; the expanded production, which for the present order of society is and hence a prevailing cause of misery, will then be insufficient and in need of being expanded much further. Instead of generating misery, overproduction will reach beyond the elementary requirements of society to assure the satisfaction of the needs of all; it will create new needs and, at the same time, the means of satisfying them. It will become the condition of, and the stimulus to, new progress, which will no longer throw the whole social order into confusion, as progress has always done in the past."

"Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."

"Big industry, competition and generally the individualistic organization of production have become a fetter which it must and will shatter. ... It makes unavoidably necessary an entirely new organization of society in which production is no longer directed by mutually competing individual industrialists but rather by the whole society operating according to a definite plan and taking account of the needs of all."

"When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based."

"Aside from Yugoslavia, experiments with decentralization did not extend to planning innovation, the greatest weakness of the socialist economies. Even where markets were allowed to exert more influence over current production, the state was still responsible for planning the future. And state socialism provided only weak incentives for innovation. The Schumpeterian pressure that forced capitalist firms to innovate or die was not present in the planned economy."

"The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil. We see before us a huge community of producers the members of which are unceasingly striving to deprive each other of the fruits of their collective labor – not by force, but on the whole in faithful compliance with legally established rules. ... I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society. Nevertheless, it is necessary to remember that a planned economy is not yet socialism. A planned economy as such may be accompanied by the complete enslavement of the individual."

"Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power."

"Industry controlled by society as a whole, and operated according to a plan, presupposes well-rounded human beings, their faculties developed in balanced fashion, able to see the system of production in its entirety."

"The high theory debates that she and others conducted with the more orthodox theorists of MIT reached an agreed conclusion when Paul Samuelson was forced to concede that there was no logically consistent way to construct a demand function for capital outside the artificial confines of a one-commodity world (see the symposium on paradoxes in capital theory, Quarterly Journal of Economics, 1966). This, in turn, means that it is not possible to formulate a logically consistent theory of the long-run normal rate of interest; hence no consistent theory of long-run prices or of output and employment is possible either. Building so-called Keynesian models on the basis of market failure no longer makes sense--there cannot be a short-run deviation from a long-run equilibrium that is not there in the first place! In one stroke the critical task in which Keynes had failed was accomplished, and the marginal efficiency of capital schedule was swept away too. What was left was the part of his theory that Keynes himself had regarded as his truly original contribution--the principle of effective demand."

"Keynes's answer was that the rate of interest was determined in the financial markets, and there is no reason why it should necessarily gravitate to the requisite level. It was not a very convincing answer. This was the weakness Hicks would exploit. The demand function for investment (which Keynes called the marginal efficiency of capital schedule) was the Trojan horse that allowed the forces of his enemies to attack the very heart of Keynes's case for an under-employment equilibrium and hence for active government. It was one of Keynes's closest collaborators who solved the dilemma. From 1936 on, Joan Robinson had argued that if Keynes was right about the determination of employment, then orthodox theory must be wrong about the determination of prices. In the mid-1960s she at last found a way of sustaining her argument."

"The average man of the present age … does not want to be a sentimentalist in his endeavors; he wants some measure for purposeful activity; he wants to feel that through the world some increasing purpose runs. … But since his metaphysic calls only for magnitude and number, since it is becoming without a goal, it is not a source of distinctions in value. It is a system of quantitative comparison. Its effect therefore has been to collapse the traditional hierarchy and to produce economic man, whose destiny is mere activity."

"Some political scientists, for example, say that the Economic Man may be very nice for playing games with but that he is an abstraction who does not exist, while Hitler and Stalin are real and not to be played with. Economic analysis, they say, not only does not help us to understand such political actors but makes it more difficult to bring them within the purview of social science by systematically excluding or deforming their specific motives. Economists, seeking mathematical convenience, turn us away from the consideration of the most important social phenomena."

"[T]he entrepreneur is the focal point at which the dynamic forces... materialize into action for economic progress. The entrepreneur doesn't really respond primarily to the profit motive... entrepreneur and investor—are often not... the same person. Neither does the entrepreneur seek power... management and entrepreneur are not necessarily one. Nor do Veblenesque social status or Weberian Protestant righteousness seem to be the main motives... Rather, he seems to be the adventurer, a pioneer, an artist sculpting in economic clay. ...Is the dynamic force that sustains the industrialized economic system... an irrational spirit..? Many economists... postulate the existence of an "economic man," who rationally and objectively computes... and makes a decision that will maximize perofits. ...[T]his imaginary construct is the dynamic implicitly assumed for almost all of the economic theories from the late 1800s to the present. ...[T]hey continue to use it because without economic man most of their theories would be invalidated."

"There is a principle, supposed to prevail among many, which is utterly incompatible with all virtue or moral sentiment; and as it can proceed from nothing but the most depraved disposition, so in its turn it tends still further to encourage that depravity. This principle is, that all benevolence is mere hypocrisy, friendship a cheat, public spirit a farce, fidelity a snare to procure trust and confidence; and that while all of us, at bottom, pursue only our private interest, we wear these fair disguises, in order to put others off their guard, and expose them the more to our wiles and machinations."

"Political economy ... does not treat the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end."

"Both Socrates and Christ taught economic man to be at least slightly ashamed of himself when he failed to sacrifice the lower capacity to the higher. Freud is America’s great teacher, despite his ardent wish to avoid that fate. For it was precisely the official and parental shams of high ideals that Freud questioned. In their stead, Freud taught lessons which Americans, prepared by their own national experience, learn easily: survive, resign yourself to living within your moral means, suffer no gratuitous failures in a futile search for ethical heights that no longer exist—if they ever did."

"What I would agree with is that the Washington Consensus, whatever you want to call it, got a little too comfortable with, they’re looking at GDP numbers, and they’re looking at the internet, and everything is looking pretty great; and particularly after the Cold War, Jim, after what you guys engineered, you have this period of great smugness on the part of America and American elites, thinking, ‘We got this all figured out.’ Remember there were books coming out that it’s the end of history."

"The Washington doctrine was everywhere greeted by ideological cheerleaders: from the profiteers of the ‘Irish miracle’ (the property-bubble boom of the ‘Celtic tiger’) to the doctrinaire ultra-capitalists of former Communist Europe. Even ‘old Europeans’ were swept up in the wake. The EU’s free-market project—the so-called ‘Lisbon agenda’; the enthusiastic privatization plans of the French and German governments: all bore witness to what its French critics described as the new ‘pensée unique’. Today there has been a partial awakening. To avert national bankruptcies and wholesale banking collapse, governments and central bankers have performed remarkable policy reversals, liberally dispersing public money in pursuit of economic stability and taking failed companies into public control without a second thought. A striking number of free market economists, worshippers at the feet of Milton Friedman and his Chicago colleagues, have lined up to don sackcloth and ashes and swear allegiance to the memory of John Maynard Keynes. This is all very gratifying. But it hardly constitutes an intellectual revolution. Quite the contrary: as the response of the Obama administration suggests, the reversion to Keynesian economics is but a tactical retreat. Much the same may be said of New Labour, as committed as ever to the private sector in general and the London financial markets in particular. To be sure, one effect of the crisis has been to dampen the ardor of continental Europeans for the ‘Anglo-American model’; but the chief beneficiaries have been those same center-right parties once so keen to emulate Washington."

"Washington itself implied that this is something out of the rich Western countries, and if they agree on something that is to be imposed on the rest of the world, it means that there is no consultation. It should be a world consensus, not a Washington consensus. Every time we are up against this understanding there, we find that they are all designed in order to be in their favor, to enrich them, in fact, and it would be at our expense. That is why we feel a need to resist the Washington consensus."

"If the imperial order of Western supremacy is very slowly beginning to change, the reasons are instructive. China's economic growth in recent decades is precisely the outcome of a constant refusal to accommodate to the Washington Consensus; that is, a refusal to allow China's economy to be shaped by the institutional structures that this system generated. Other emerging economies have also succeeded precisely to the extent that they have refused neoliberal policies."

"I've done well in my career, but I am not sitting on $22m. I'm doing this so that one negative audience comment in a test screening won't force me to change the end of my movie."

"Barbarossa achieved its funding goal of $10,000 within three hours of being posted. Not even children's cancer research can match that pace. There's somebody out there right now waiting for enough donations to trickle in to cover a life-saving operation, but the Internet, in its vast wisdom, has decided that jiggly upskirt warfare was in more immediate need of philanthropy."

"Starting one’s working life in an irregular job can lead to a fruitful career or to long-term stagnation. While studies of European labour markets support the stepping-stone hypothesis, this column presents evidence that irregular jobs lead to negative midlife outcomes in Japan. Future jobs are less stable, pay less, and psychological distress is higher. Such problems suggest a role for policy to reduce economic and social disadvantages of non-regular workers. [...] Our estimation results show that initial job status as an irregular employee reduces opportunities for success in later life in Japan. This finding contrasts with observations from previous studies in European countries, where beginning working life with fixed-term contracts and other non-regular job statuses does not necessarily signal a bad start. Further, the current study highlighted the traumatic impact of initial unstable job status on mental health; influence of this status is not fully mediated by socioeconomic/marital status. We can argue that policy measures are needed to reduce economic and social disadvantages of non-regular workers in Japan."

"I end with a concluding ironic point about the Methodenstreit. Although at first the Germans were successful and then later (for a time) the Austrians appeared vindicated, in the still longer term it might be said that neither group won. One focused on national destinies might be tempted to say that the French won. Both schools would, after all, end up losing out to the followers of Léon Walras (who mathematized marginalism) and of Auguste Comte (the father of positivism}. Ah, the French."

"When I refer to a crisis of capitalism, I do not mean an economic crisis—say, slowdown in growth or an uptick in inflation. Capitalism is in crisis when its core relationship (the sale of production for profit) and its two enabling pillars (private property in the means of production and wage relations between owners and workers) are contested by the public, in particular by the workers who make capitalism run. As part of these expressions of unhappiness, people have historically demanded alternative forms of social organization. indeed . . . austerity's primary utility over the last century has been to silence such calls and foreclose alternatives to capitalism. Mostly austerity serves to quash public outcry and worker strikes—not, as is advertised, to spontaneously improve country's economic indicators by practicing greater economic discipline."

"Austerity as we know it today emerged after World War I as a method for preventing capitalism's collapse: economists in political positions used policy levers to make all classes of society more invested in private, capitalist production, even when these changes amounted to profound (if also involuntary) personal sacrifices. In the early 1920s, austerity functioned as a powerful counteroffensive to strikes and other forms of social unrest that exploded on an unprecedented scale after the war—a period traditionally, and oddly, overlooked by political and economic scholars who study austerity. The timing of austerity's invention reflects its animating motivations. Of greater importance than austerity's purported economic efficacy was its ability to guard catalyst relations of production during a time of unprecedented social organizing and public agitation from working classes."

"Finally, and very importantly, the cause of necessary economic reforms has not been served by confounding that necessity with the policy of austerity. Indeed, serious consideration of the kinds of reform that are needed has been hampered, rather than aided, by the loss of clarity about the distinction between reform of bad administrative arrangements (such as people evading taxes, government servants using favoritism, banks being exempt from necessary discipline, or—for that matter—preserving a nonviable system of early retiring ages), and austerity in the form of ruthless cuts in public services and basic social security. The requirements for alleged financial discipline have tended to amalgamate the two, even though any analysis of social justice would view policies for necessary reform in an altogether different way from drastic cuts in important public services. Even if that distinction may have been lost in rather crude financial thinking, opportunities for adequate public reasoning, in “government by discussion,” could have brought out its relevance clearly enough. Europe has been extraordinarily important for the world, which has learned so much from it. It can remain globally important by setting its own house in order—economically, politically, and socially. The first step is to understand properly, with some clarity, the policy challenges that Europe faces today. A failure to do so will reverberate far beyond Europe’s own borders."

"The term 'marginal revolution' is usually taken to refer to the nearly simultaneous but completely independent discovery in the early 1870s by Jevons, Menger and Walras of the principle of diminishing marginal utility as the fundamental building block of a new kind of static microeconomics. It constitutes, so the argument goes, one of the best examples of multiple discoveries in the history of economic thought, which simply cries out for some sort of historical explanation: it is too much to believe that three men working at nearly the same time in such vastly different intellectual climates as those of Manchester, Vienna and Lausanne could have hit by accident on the same idea. The trouble is that none of the standard explanations is convincing. The levels of economic development in England, Austria and Switzerland were so different in the 1860s that all crypto-Marxist explanations in terms of changes in the structure of production or the relationship between social classes strain our sense of credulity. Likewise, the utilitarian-empiricist tradition of British philosophy, the neo-Kantian philosophical climate of Austria and the Cartesian philosophical climate of Switzerland simply had no elements in common that could have provoked a utility revolution in economics. In matters of economic policy, there was in fact continuity with classical thinking and when Jevons and Walras wrote on policy questions, as they often did, there was little or no connection between their practical recommendations and their views on value theory."

"Austerity is not new, nor is it a product of the so-called Neoliberal Era that began in the 1970s. Outside, perhaps, of the less than three booming decades that followed World War II, austerity has been the mainstay of capitalism. It has been true throughout history that where capitalism exists, crisis follows. Where austerity has proven wildly effective is in insulating capitalist hierarchies from harm during these moments of would-be social change. Austerity is capitalism's protector, popular among states for its effectiveness and billed as a means of "fixing" economies by increasing their "efficiency"—short-term readjustments for long-term gains."

"The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market. It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth's surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before."

"No doubt all commodities have politics. But money and credit and the structure of finance piled on them are constituted by political power, social convention and law in a way that sneakers, smartphones and barrels of oil are not. At the apex of the modern monetary pyramid is fiat money. Called into existence and sanctioned by states, it has no “backing” other than its status as legal tender. That uncanny fact became literally true for the first time in 1971–1973 with the collapse of the Bretton Woods system. Under the Bretton Woods agreement of 1944, the dollar, as the anchor of the global monetary system, was tied to gold. This was itself, of course, no more than a convention. When it became too hard for the United States to live with—upholding it would have required deflation—on August 15, 1971, President Nixon abandoned it. This was a historic caesura. For the first time since the advent of money, no currency in the world any longer operated on a metallic standard. Potentially, this freed monetary policy, regulating the creation of money and credit as never before. But how much freedom would policy makers actually have after throwing off the “golden fetters”? The social and economic forces that had made the gold peg unsustainable even for the United States were powerful—at home the struggle for income shares in an increasingly affluent society, abroad the liberalization of offshore dollar trading in London in the 1960s. When those forces were unleashed in the 1970s without a monetary anchor, the result was to send inflation soaring toward 20 percent in the advanced economies, something unprecedented in peacetime. But rather than retreating from liberalization, by the early 1980s any restriction on global capital flows was lifted. It was precisely to tame the forces of indiscipline unleashed by the end of metallic money that the market revolution and the new neoliberal “logic of discipline” were inaugurated. By the mid-1980s Fed chair Paul Volcker’s dramatic campaign to raise interest rates had curbed inflation. The only prices going up in the age of the great moderation were those for shares and real estate. When that bubble burst in 2008, when the world faced not inflation but deflation, the key central banks threw off their self-imposed shackles. They would do whatever it took to prevent a collapse of credit. They would do whatever it took to keep the financial system afloat. And because the modern banking system is both global and based on dollars, that meant unprecedented transnational action by the American state."

"It is easy to understand why people viewed the gold standard as the symbol of this greatest and most beneficial of all historical changes. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy. In the struggle against the gold standard, much more was at stake than commodity prices and foreign-exchange rates."

"Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold — and not something else — is used as money is merely a historical fact and as such cannot be conceived by catallactics. In monetary history too, as in all other branches of history, one must resort to historical understanding."

"It is the outstanding merit of gold as the monetary standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pressure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice. It is precisely the merit of the gold standard, finally, that it puts a limit on credit expansion."

"No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which nationalistic governments try to isolate their countries from the rest of the world, gold is still used as money."

"Money is gold, and nothing else."

"[W]ith sound-money and gold-standard morality transcendent, Jackson's destruction of the Bank was all but universally regarded as a villainous action. ...In more recent times, as the conventional wisdom of bankers has come... modestly into question and a heightened democratic ethos has ascribed both perception and virtue to the common man, Jackson's action has been viewed with contrasting warmth. He was... speaking for the small, energetic and aspiring folks of the new states, the new farms and the frontier. He was, in an important respect, their accidental ally. He opposed the bank as a monopoly—a monster which, as Biddle held, had power to rival that of the state. ...[I]t was also the power of his political enemies. But he favored hard money—he was for currency consisting of gold and silver and for eschewing all paper as the instrument of the devil. In getting rid of the bank, he got... the softest [money] of all—an explosion of new banks, and avalanche of bank notes. But this, and the loans so allowed, were what his constituents most wanted. Had Andrew Jackson succeeded in establishing... hard money... his name would have been reviled by the... small, energetic and aspiring folk of the frontier. Historians, in pondering whether Jackson was right or wrong on financial matters, must allow... a third possibility... that he was confused."

"Belief in the gold standard was the faith of the age. With some it was a naive, with some a critical, with others a satanistic creed implying acceptance in the flesh and rejection in the spirit. Yet the belief itself was the same, namely, that banknotes have value because they represent gold. Whether the gold itself has value for the reason that it embodies labor, as the socialists held, or for the reason that it is useful and scarce, as the orthodox doctrine ran, made for once no difference."

"That very large system, with interconnected industries responding to each other through delays, entraining each other in their oscillations, and being amplified by multipliers and speculators, is the primary cause of business cycles. Those cycles don't come from presidents, although presidents can do much to ease or intensify the optimism of the upturns and the pain of the downturns. Economies are extremely complex systems; they are full of balancing feedback loops with delays and they are inherently oscillatory."

"The other thing was an open problem: How does economics really look like when you recognize it as the prototype of a new kind of science of complex phenomena which could not employ the simple model of mechanics or physics, but had to deal with what then I described as mere pattern predictions, certain limited prediction. That was so much more fascinating as an intellectual problem."

"The neoclassical era in economics has ended and has been replaced by an unnamed era. We believe what best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era."

"State capitalism would be a step forward as compared with the present state of affairs in our Soviet Republic. If in approximately six months’ time state capitalism became established in our Republic, this would be a great success and a sure guarantee that within a year socialism will have gained a permanently firm hold."

"Three-fourths of the Italian economy, industrial and agricultural, is in the hands of the state. And if I dare to introduce to Italy state capitalism or state socialism, which is the reverse side of the medal, I will have the necessary subjective and objective conditions to do it."

"Under a system of ‘state–controlled capitalism,’ or mixed economy, large companies can avoid normal evolutionary processes by hooking up with state power in order to direct, regulate, and micromanage the economy. And if they skirt bankruptcy, they can be declared “too big to fail,” showered with billions in taxpayer bailouts, and quickly taught that bad behavior is richly rewarded."

"Thus by 1925, both Leninism and Fascism, variants of Marxism, had created political and economic systems that shared singular properties… Both sought order and disciple of entire populations in the service of an exclusivistic party and an ideology that found its origins in classical Marxism… Both created a kind of ‘state capitalism,’ informed by a unitary party, and responsible to a ‘charismatics’ leader.”"

"If we are to keep the term ‘capitalism’ at all, then, we must distinguish between ‘free-market capitalism’ on the one hand, and ‘state capitalism’ on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence."

"I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all. ... I'm not sure capitalism is the right word. There is a sense in which every society is capitalist. The Soviet Union was capitalist, but it was state capitalism. Latin American societies in the past have been capitalist, but it has been oligarchic capitalism. So what we really need to talk about is not capitalism but free market or competitive capitalism which is the system that we would like to have adopted, not just capitalism."

"The features of complexity economics are clear. The economy is not necessarily in equilibrium; in fact it is usually in nonequilibrium. Agents are not all knowing and perfectly rational; they must make sense of the situations they are in and explore strategies as they do this…In this way the economy is organic, one layer forms on the top of the previous ones; it is ever changing, it shows perpetual novelty; and structures within it appear, persist for a while, and melt back into it again."

"Let me examine the alleged "distinction from capitalism" characteristic of the Soviet Union and see whether it isn't a distinction from a certain stage of capitalism rather than from capitalism as a whole. The determining factor in analyzing the class nature of a society is not whether the means of production are the private property of the capitalist class or are state-owned, but whether the means of production ... are monopolized and alienated from the direct producers. The Soviet Government occupies in relation to the whole economic system the position which a capitalist occupies in relation to a single enterprise. ... "Bureaucratic state socialism" is an irrational expression behind which there exists the real economic relation of state-capitalist-exploiter to the propertyless exploited."