Jeremy Corbyn has gained a new measure of popularity in recent months, largely because he has become popular. He has changed from being a crabby, obsessed 'leftie' to being an almost-charismatic emblem of popular disgust with boring, respectable politicians. In his speech yesterday his main task was to transmit some of the enthusiasm that was being shown - to excess - in the hall at the Labour Party Conference to the wider population; while combining it with a measure of responsible policy that can be presented to the electorate. Much of what he has recently advocated has my strong endorsement , based on half a century of intensive study of the history and effectiveness [or, as usual, ineffectiveness] of economic policy: especially when derived from economic theory. A modern country needs a mixed economy, with a large amount of state investment and public ownership of natural monopolies [which must, of course, be at least as well managed by the public sector as the private sector: which would be hard to achieve, but is doable].
One aspect of his speech, however, verged on the cretinous. That was his apparent Luddism in suggesting that action should be taken - including punitive taxation - to prevent human beings' jobs being taken over by robots; presumably at the behest of wicked capitalists. Virtually every forecast for the medium term future of the economy envisage huge benefits [not least, massive gains in productivity and in the range of products and experiences that will be available] due to innovations where human ideas are made into products and experiences to be enjoyed by everyone by the combined action of people and machines drawing on intensified robotics and enhanced artificial intelligence [AI].
The origin of the term Luddism comes from the mythical character Ned Ludd, the supposed organiser of the gangs of handicraft workers who broke into premises and smashed machines that were capable of replacing old-established crafts [because they greatly enhanced productivity] in the new factories, particularly in textile manufacture in the period 1790-1820. Individual employers were ruined by the Luddites, and a few workmen were penalised when they were caught in the act [or betrayed by colleagues]; but over a couple of decades the machines prevailed, and employment increased [though this often included child exploitation, until that was banned by laws that were enforced by inspectors who actually entered the employers' premises]. The ban on child labour, the ban on womens' night work, bans on the use of dangerous chemicals and processes need to be enforced in a civilised society: the state must be active in the economy to promote and preserve human rights and humans' health. One result of recent laissez-faire attitudes in society at the start of this millennium is the rise of 'modern slavery' [though I cannot detect anything notably modern about it]. The government's obsessive austerity has reduced the numbers of police officers, while terrorist threats have reoriented the work of many officers: with the result that offences like internationally-traded forced prostitution and domestic service have grown almost uninterrupted.
This is the background against which - so it is promised - Mrs May is to utter a peon of praise to the 'free market' as the central point of her speech to the Conservative Conference which opens today. This will be contrasted by the press [which is predominantly pro-Conservative] with the backward-looking old socialism and Luddism of the Corbyn effort yesterday. Mrs May will utter this claptrap in between calls to the US president asking for his intervention in a trade war with the US over the fate of the Bombardier aircraft factory in Belfast [and three other plant in Northern Ireland, as described yesterday in this blog]: a prime example of point protectionism which makes nonsense of the hard Brexiteers' vision of the future. Mrs May has to press this case, in defence of free trade ideology, despite the fact that her parliamentary majority depends upon taking a chauvinistic stance on the Bombardier issue. She lost the recent general election, and clings on to power with the votes of the Democratic Unionists. All the Bombardier plants are in constituencies held by the DUP: and the Bombardier jobs are of such importance to Catholic as well as Protestant workers that Sinn Fein's leader has signed a joint letter with the DUP leader to send to the US Vice-President. Hostilities at Stormont have been transcended by this issue; and Mrs May is compelled to make a nonsense of her free market rhetoric even as she utters it. Nevertheless, as a poodle of the Northern Ireland politicians she has no option but to demonstrate in the clearest way that her rhetoric is claptrap. Thus the Tories will be diminished by the inconsistency and infighting that will be in full view in the coming days: yet they all know they must hang on to office, or Corbyn will have the chance of his lifetime.
Showing posts with label mixed economy. Show all posts
Showing posts with label mixed economy. Show all posts
Thursday, 28 September 2017
Tuesday, 19 September 2017
The Glory of a Mixed Economy
Between 1950 and 1972, Britain boasted of its Mixed Economy. Then, in the 'seventies, the misapplication of Keynes's principles by the self-styled NeoKeynesians combined with the OPEC cartel to create an inflationary spiral that threatened to destroy the economy. That situation, in turn, made the opportunity for Thatcherite Monetarism and the 'free markets' dogma to be installed: with apparent temporary success and long-term ruinous outcomes. I have issued sufficient jeremiads about the latter state to give it a rest for the moment, and to pick out instead the features of the economic policy [broadly pursued by both Labour and Conservative governments] that prevailed beneficially under the generic description of the Mixed Economy.
During World War II the coalition government published the Beveridge Report, which promised a universal, compulsory social insurance scheme that would provide healthcare, unemployment insurance and old-age pensions for all contributors and their dependents. Both the major parties in the coalition were committed to implementing the scheme, and though the costs - especially of the national health system - always exceeded the income of the national insurance fund it was hoped that a time would come when those books would balance and a subsidy from general taxation would not be necessary. The National Health Service, in particular, was immensely popular and it delivered massive benefits to the entire nation.
Labour won the 1945 election, with a clear mandate to nationalise core infrastructure services and the 'commanding heights' of the industrial system. Under the infrastructure policy, the clapped-out railways, the partially-derelict canals, the major bus companies and the biggest road haulage companies [with their depots and other support facilities] were nationalised. The railways already owned some ports, and major hotels near stations, and these were taken into state ownership as well. For the first decade of nationalisation there was an attempt to support all of these facilities; but with the rapidly rising popularity of private cars and the consequential demand for the state to provide an appropriate road network the aggregate costs became too great. The slow death of the canals continued, and the subsidy of railways became excessively burdensome until a Tory government appointed a 'technocrat', Dr Beeching, to manage the railways. He just adopted a slash-and-burn approach, reducing the system too much in an orgy of destruction that is pretty universally regarded with hindsight to have been absurdly excessive. But the core railways system was preserved, to become a success eventually: and the motorways were built.
Coal and steel were among the 'commanding heights' of the economy which were nationalised, reorganised, and subject to massive investment and modernisation: which worked beneficially for a couple of decades. Electricity and gas services were nationalised, with massive investment in new power stations and the creation of the national grid for electricity and the beginning of a similar system for gas distribution. Telephones had been developed as a state monopoly, under the Post Office, and their availability increased immensely. Television had been suspended for the war, and it was reintroduced [BBC only, at first] to become massively popular.
The state managed all these things, while making good the massive destruction that had been effected by German bombing during the war and the massive wear-and-tear on all types of plant and equipment that had happened while concentration on war production had meant that maintenance and repairs had been minimal. Perhaps the greatest achievement was in housing. Private builders were enabled to develop private estates while the state sector built hundreds of thousands of houses. So great was the success of that programme, that under a Conservative housing minister in the later 'fifties 400,000 houses were completed in a single year. By contrast, the pathetic shower who govern us now cannot orchestrate the 'market economy' to provide so many as 100,000 homes in the face of desperate need.
Not all was perfect in those years; but things felt better than they do now because there was a feeling of common national purpose with significant objectives being achieved by the public and proivate sectors of the economy working in concert.
During World War II the coalition government published the Beveridge Report, which promised a universal, compulsory social insurance scheme that would provide healthcare, unemployment insurance and old-age pensions for all contributors and their dependents. Both the major parties in the coalition were committed to implementing the scheme, and though the costs - especially of the national health system - always exceeded the income of the national insurance fund it was hoped that a time would come when those books would balance and a subsidy from general taxation would not be necessary. The National Health Service, in particular, was immensely popular and it delivered massive benefits to the entire nation.
Labour won the 1945 election, with a clear mandate to nationalise core infrastructure services and the 'commanding heights' of the industrial system. Under the infrastructure policy, the clapped-out railways, the partially-derelict canals, the major bus companies and the biggest road haulage companies [with their depots and other support facilities] were nationalised. The railways already owned some ports, and major hotels near stations, and these were taken into state ownership as well. For the first decade of nationalisation there was an attempt to support all of these facilities; but with the rapidly rising popularity of private cars and the consequential demand for the state to provide an appropriate road network the aggregate costs became too great. The slow death of the canals continued, and the subsidy of railways became excessively burdensome until a Tory government appointed a 'technocrat', Dr Beeching, to manage the railways. He just adopted a slash-and-burn approach, reducing the system too much in an orgy of destruction that is pretty universally regarded with hindsight to have been absurdly excessive. But the core railways system was preserved, to become a success eventually: and the motorways were built.
Coal and steel were among the 'commanding heights' of the economy which were nationalised, reorganised, and subject to massive investment and modernisation: which worked beneficially for a couple of decades. Electricity and gas services were nationalised, with massive investment in new power stations and the creation of the national grid for electricity and the beginning of a similar system for gas distribution. Telephones had been developed as a state monopoly, under the Post Office, and their availability increased immensely. Television had been suspended for the war, and it was reintroduced [BBC only, at first] to become massively popular.
The state managed all these things, while making good the massive destruction that had been effected by German bombing during the war and the massive wear-and-tear on all types of plant and equipment that had happened while concentration on war production had meant that maintenance and repairs had been minimal. Perhaps the greatest achievement was in housing. Private builders were enabled to develop private estates while the state sector built hundreds of thousands of houses. So great was the success of that programme, that under a Conservative housing minister in the later 'fifties 400,000 houses were completed in a single year. By contrast, the pathetic shower who govern us now cannot orchestrate the 'market economy' to provide so many as 100,000 homes in the face of desperate need.
Not all was perfect in those years; but things felt better than they do now because there was a feeling of common national purpose with significant objectives being achieved by the public and proivate sectors of the economy working in concert.
Tuesday, 4 July 2017
Definition, Differentiation and Sense
Yesterday in Liverpool the Chancellor of the Exchequer told a 'business audience' [the CBI and guests] that the government must 'hold its nerve' to strike a balance between the legitimate aspirations of public sector workers and 'the taxpayer'. Such arrant nonsense could only emanate from a scriptwriting team that includes Economists.
The simple truth is that all public sector workers are taxpayers. Some, in the most simple jobs and on short-hours contracts may not pay income tax; but they are open to assessment for the tax and to national insurance. In all other aspects of life they are taxpayers: as drinkers, smokers, buyers of petrol and owners of TV sets.
While the Corbynite faction in the Labour party might include some extremists who mentally separate 'capitalists' from 'workers' and both categories from the rest of society, that is equally nonsensical. Even if their investment in shares and bonds is as exiguous as their slowly-accumulating 'pot' of savings in a compulsory minimum pension scheme, virtually everyone in employment willy-nilly has some capital. Those who have been lucky enough to 'buy' their homes [even though the mortgage lender often owns more of it than they do, and there is always a risk of them falling into 'negative equity'] do have a capital asset so long as they have 'equity ' in the house or flat.
Over the last weekend the media emphasised the bizarre situation that a very large proportion of the new cars that people 'buy' are effectively on loan from finance companies. The user is logged as the owner, but the loan agreement that enables her to obtain the vehicle is such that at the end of the initial loan period [say, two years] the 'owner' has not returned enough cash to the lender for the residual ownership of the vehicle to be given to the user. So the user is tempted to buy another new car on a similar contract to the last one, and the used car passes from the lender into the second-hand market. The lenders are usually able in total to recoup the discounted price at which they buy the cars from their manufacturers. The users are able to feel proud of their new car every couple of years. The economy contains a rising amount of 'unsecured personal debt' in the form of car loans; and the Bank of England can begin to worry about the sustainability of the whole edifice. So the Bank may require the lenders to hold larger balances of 'tier one' capital, which means that they can lend only a smaller proportion of the funds that they have on their books; thus the number of new car loans available in the ensuing months may be reduced, and the demand for new cars may decline. In that way, the impact of the Bank will be to reduce demand in the material economy; which can impact adversely on employment statistics, sales figures and manufacturing output. Thus [at least, in theory] 'excessive' borrowing by a man who works in a car factory can indirectly lead to the tipping-point in the money market that leads to his redundancy. This may seem a far-fetched example, but it does illustrate the principle that at least some producers are also consumers and borrowers.
So if Philip Hammond wants to convince the country that his endeavour to maintain at least the basic outline of Osbornian austerity is in the nation's interest, he has to begin with the recognition that 'taxpayers' and 'public sector workers' are not discrete sets of people. We are all in this together. It may be easier for Economists and statisticians to separate out aspects of whole individuals and put them in separate categories for some illustrative purpose; but in the end we are all entire people who necessarily live in a mixed economy. Simplistic Thatcherites may still try to separate the good 'private sector' from the parasitic and inefficient 'public sector', and some voters can always be conned into accepting that sort of categorisation. But anyone who experiences the wonderful care of the hard-worked staff of the NHS in a family crisis becomes very much harder to convince of the case for despising and oppressing the public sector and the people who sustain it.
Both Corbynite categorisation and Tory classification of people and activities are unsatisfactory. The present government's stand, largely derived from bad Economics, and sustained by a dogmatic assertion that 'debt is bad', is becoming indefensible and ministers are rushing to differentiate themselves from it. Labour's policy is mercifully opaque.
There is an urgent need simply to recognise that we all live in a mixed economy, that we have badly scrambled the mixture, and need rationally to reconstruct it.
The simple truth is that all public sector workers are taxpayers. Some, in the most simple jobs and on short-hours contracts may not pay income tax; but they are open to assessment for the tax and to national insurance. In all other aspects of life they are taxpayers: as drinkers, smokers, buyers of petrol and owners of TV sets.
While the Corbynite faction in the Labour party might include some extremists who mentally separate 'capitalists' from 'workers' and both categories from the rest of society, that is equally nonsensical. Even if their investment in shares and bonds is as exiguous as their slowly-accumulating 'pot' of savings in a compulsory minimum pension scheme, virtually everyone in employment willy-nilly has some capital. Those who have been lucky enough to 'buy' their homes [even though the mortgage lender often owns more of it than they do, and there is always a risk of them falling into 'negative equity'] do have a capital asset so long as they have 'equity ' in the house or flat.
Over the last weekend the media emphasised the bizarre situation that a very large proportion of the new cars that people 'buy' are effectively on loan from finance companies. The user is logged as the owner, but the loan agreement that enables her to obtain the vehicle is such that at the end of the initial loan period [say, two years] the 'owner' has not returned enough cash to the lender for the residual ownership of the vehicle to be given to the user. So the user is tempted to buy another new car on a similar contract to the last one, and the used car passes from the lender into the second-hand market. The lenders are usually able in total to recoup the discounted price at which they buy the cars from their manufacturers. The users are able to feel proud of their new car every couple of years. The economy contains a rising amount of 'unsecured personal debt' in the form of car loans; and the Bank of England can begin to worry about the sustainability of the whole edifice. So the Bank may require the lenders to hold larger balances of 'tier one' capital, which means that they can lend only a smaller proportion of the funds that they have on their books; thus the number of new car loans available in the ensuing months may be reduced, and the demand for new cars may decline. In that way, the impact of the Bank will be to reduce demand in the material economy; which can impact adversely on employment statistics, sales figures and manufacturing output. Thus [at least, in theory] 'excessive' borrowing by a man who works in a car factory can indirectly lead to the tipping-point in the money market that leads to his redundancy. This may seem a far-fetched example, but it does illustrate the principle that at least some producers are also consumers and borrowers.
So if Philip Hammond wants to convince the country that his endeavour to maintain at least the basic outline of Osbornian austerity is in the nation's interest, he has to begin with the recognition that 'taxpayers' and 'public sector workers' are not discrete sets of people. We are all in this together. It may be easier for Economists and statisticians to separate out aspects of whole individuals and put them in separate categories for some illustrative purpose; but in the end we are all entire people who necessarily live in a mixed economy. Simplistic Thatcherites may still try to separate the good 'private sector' from the parasitic and inefficient 'public sector', and some voters can always be conned into accepting that sort of categorisation. But anyone who experiences the wonderful care of the hard-worked staff of the NHS in a family crisis becomes very much harder to convince of the case for despising and oppressing the public sector and the people who sustain it.
Both Corbynite categorisation and Tory classification of people and activities are unsatisfactory. The present government's stand, largely derived from bad Economics, and sustained by a dogmatic assertion that 'debt is bad', is becoming indefensible and ministers are rushing to differentiate themselves from it. Labour's policy is mercifully opaque.
There is an urgent need simply to recognise that we all live in a mixed economy, that we have badly scrambled the mixture, and need rationally to reconstruct it.
Sunday, 4 June 2017
No Safe Haven
I sit down to write this blog entry at seven o'clock on a bright and tranquil Sunday morning. But I am acutely aware that I am exactly one mile from Tower Bridge, where the latest reported terrorist incident occurred. When I went to bed last night, it was being reported that all three killers had themselves been shot by the police; within half an hour of the first call being made to the emergency services.
The assailants, who had been armed with knives, had apparently said; in English: "This is for Allah!" as they stabbed people at random.
Although my flat is on the north bank of the Thames, many of my friends and neighbours regularly go to Borough High Street and Borough Market [as I do]; it is an easily accessible place for dining and shopping. It is quite likely that in the coming days I will learn that someone I know is a victim of the incident; but now it is most important to give consideration to all the people who were victims of the attack and to their families.
It is usual to say - and to mean - after such incidents that 'we are not afraid', 'we will not be intimidated'. Yet there will be an intensification of the admonitions to be on our guard and to report anything suspicious. The pressure on the police will intensify, and this pathetic government will try to cut some other aspect of public spending to pay for some increase in the security services.
It is likely that shoddy plans to reduce still further the number of soldiers and sailors and airforce personnel will be hardened to cover some of the funding gap; thus ensuring that the UK is even less likely to be able contribute sufficiently to the growing threats to peace and security around the world.
The current General Election is increasingly being recognised as a surreal event. The Conservatives have almost no policies, relying on the silly notion that the nation can be made to trust the prime minister to dream up policies that she has not yet enunciated, once she is returned to power. Meanwhile Mrs May is making an appeal to 'hard-working families' to support her, despite the fact that the social and community services around them have savagely been cut: and more cuts are promised. The Conservatives have abandoned their usual attempt to woo 'the business community', despite the fact that they are again generously being supported by backers who believe that the Tories are still a less-bad option than the Labour Party.
Mrs May has returned to Downing Street to be able to appear 'prime ministerial' as she makes statements of the usual vacuity and chairs a meeting of the COBRA committee that has command of no additional resources with which to enhance the security of the country.
The paradox of the election is that Labour's plans to re-energise the economy could produce resources both to strengthen industry and to fund more resources for the security services and the police. Only by investing in the growth of the economy can our society secure its future. For centuries, the state has been a major investor; often through militarily investment, but also in the nationalised industries when the UK had a functioning 'mixed economy': that was not a golden age, but it was infinitely more comfortable for hard-working families than is Mrs May's depressing environment of cuts and dissimulation.
The assailants, who had been armed with knives, had apparently said; in English: "This is for Allah!" as they stabbed people at random.
Although my flat is on the north bank of the Thames, many of my friends and neighbours regularly go to Borough High Street and Borough Market [as I do]; it is an easily accessible place for dining and shopping. It is quite likely that in the coming days I will learn that someone I know is a victim of the incident; but now it is most important to give consideration to all the people who were victims of the attack and to their families.
It is usual to say - and to mean - after such incidents that 'we are not afraid', 'we will not be intimidated'. Yet there will be an intensification of the admonitions to be on our guard and to report anything suspicious. The pressure on the police will intensify, and this pathetic government will try to cut some other aspect of public spending to pay for some increase in the security services.
It is likely that shoddy plans to reduce still further the number of soldiers and sailors and airforce personnel will be hardened to cover some of the funding gap; thus ensuring that the UK is even less likely to be able contribute sufficiently to the growing threats to peace and security around the world.
The current General Election is increasingly being recognised as a surreal event. The Conservatives have almost no policies, relying on the silly notion that the nation can be made to trust the prime minister to dream up policies that she has not yet enunciated, once she is returned to power. Meanwhile Mrs May is making an appeal to 'hard-working families' to support her, despite the fact that the social and community services around them have savagely been cut: and more cuts are promised. The Conservatives have abandoned their usual attempt to woo 'the business community', despite the fact that they are again generously being supported by backers who believe that the Tories are still a less-bad option than the Labour Party.
Mrs May has returned to Downing Street to be able to appear 'prime ministerial' as she makes statements of the usual vacuity and chairs a meeting of the COBRA committee that has command of no additional resources with which to enhance the security of the country.
The paradox of the election is that Labour's plans to re-energise the economy could produce resources both to strengthen industry and to fund more resources for the security services and the police. Only by investing in the growth of the economy can our society secure its future. For centuries, the state has been a major investor; often through militarily investment, but also in the nationalised industries when the UK had a functioning 'mixed economy': that was not a golden age, but it was infinitely more comfortable for hard-working families than is Mrs May's depressing environment of cuts and dissimulation.
Wednesday, 1 February 2012
No Crisis of Capitalism
Fashionable babbling in the media and among politicians has now fixed on the vague idea that that there has been a crisis or even a failure of capitalism. So what is Capitalism?
By 1800 Political Economy taught that there were three factors of production without which economic activity could not occur:
land: which means both the site where production and/or trading takes place, and all the natural resources that are needed as direct and indirect components of the process;
labour is all the manpower and womanpower that has to be brought to bear to start and to maintain the production of the output and of all the components that go into making it, including the management of all stages of the process;
capital is the accumulated saving from the output of past times that is deployed to meet all the costs of running a business until an exchange of output for revenue to take place. The capital must cover rent for the site, the cost of the materials, and the wages of people who build and equip the factory and start production; it must also fund the original marketing of the output.
In a quest for transparency between 1800 and 1860 Political Economists developed the concept that there was a symmetrical means of computing the fair return to each factor:
Land was remunerated with rent which was the price that had to be paid for the use of the land for this purpose rather than for any alternate use. Landowners could chose to keep their estates undeveloped, for hunting; but they can optimise their income by farming it for crops [or leasing to tenant farments], or by letting sites for all sorts of purposes, including urban property which is most lucrative.
Labour was remunerated with wages that must be sufficient to attract the necessary labour, with the necessary skills and experience [where relevant]. The vast majority of people who are not peasants need to earn a living, and they learn that location, luck, experience, skill and physical fitness can attract differential wages. There are differing wage-rates for different jobs, and for the same job in different locations even within a small country. Intellectually able, fit, skilled people who are able and willing to migrate can maximise their earnings.
Capital was rewarded with profit which must be sufficient for the capital to be allocated by its owners for one selected purpose rather than for any possible alternative use. Instead of being invested in business, with all the risks that follow from such an investment, capital - in the form of cash - can be lent to the government [whose borrowing was believed to be absolutely guaranteed for the lenders]: so money will only be invested in trade and industry if it is at least likely to produce a return to investors that is greater than the rate that can be got from the government.
Political Economy earned the nickname 'the gloomy science' [or 'the dismal science'] because of the stark realities that it exposed [notably the Law of Diminishing Returns, the Iron Law of Wages and the Principle of Population]. Attempts to make aspects of the subject look more humane produced more confusion than clarity; and when clever concepts like the Labour Theory of Value were brought to bear in an attempt to explain wage differentials the oppotunities for reductionist quibbling became infinite.
After reading about these issues in depth, the young Dr Karl Marx declared that all the theorising masked one essential fact: that the system of production was not fair and was programmed constantly to become less fair. Progress in industry and in agriculture was derived from the application of ideas and of human ingenuity, but these natural resources - which brought about all the progress for mankind - could not be employed without capital and unless access was granted to land. Land was controlled by landlords, often aristocrats, who could demand increasing incomes for letting their land be used for factory and housing sites, and/or for growing crops more intensively, or for allowing quarrying and mining on and under their land. Even more outrageously unfair, to Marx's perception, was the fact that operators of factories and of rented modernised farms captured the surplus value that was generated in the process. The owner-managers of factories paid the lowest wages that could be forced on uneducated and anxious people, selected factory sites where they would pay as little in rent as possible [which is why so many works and mills were built in grim Pennine valleys] and bought raw materials from the cheapest sources: and then they sold the produce at the highest possible markup. The difference between what the output cost to make and to deliver and the price that was received at the point of delivery, was surplus value. The chap who took the money that represented the surplus value put the greatest possible amount of his takings into his firm as additional capital: which was used to expand the factory, increase the stock of raw materials and take on more labour. He squeezed costs as tightly as possible, and sold his produce for the highest possible price: so that he could invest even more in the next period and appropriate even more surplus value. The purpose was not to feed or clothe or otherwise benefit human beings: the sole objective of the new dominant class - the capitalists - was to accumulate more capital through the expansion of the system of production.
Marx constructed a political ideology based on the concept that the community must capture the control of economic activity from the capitalists: hence his system adopted the name communism: which had a special resonance with radicals after the experience of the Paris commune in 1870.
Transcending the Teutonic complexity of his formal writing, Marx and his associate Engels used journalism and pamphlets to popularise his message and to report on the obviously detrimental conditions in which many wage-earners lived, especially in the most industrialised areas of England. Anyone who combined Marx's explanation of the depredations of capitalism with the Laws of Political Economy was drawn to the conclusion that the outlook was bad. Capitalists controlled the system, and they faced diminishing returns; so they would demand even more surplus value proportional to the falling prices for which output could be sold. In an attempt to preserve their income they would reduce costs by cutting wages and demanding more work from their employees: the workers would have to take that, or become unemployed with a risk that they and their children could starve. The capitalists would also use their power vis-a-vis the landlords to reduce the prices they would pay for materials; and they would eventually dispossess the landlords either by buying them out or by the exercise of political power.
Capitalist and capitalism were created as terms of opprobrium, characterising a class and a mode of economic organisation that had emerged with modern industry and was perceived by the inventors of the concepts to be essentially inhumane. At the same time as Marxism became the ideology of the political 'left', between 1860 and 1900, successful businessmen in North America and Europe came to accept the term capitalist as a description of themselves. In the twentieth century as communism became more oppressive and inefficient after Lenin had grabbed power in Russia, the more businessmen and politicians in the 'free world' became proud of being 'capitalist'. The doctrine that a free market enabled investors of capital to maximise economic growth came to a shuddering check in the early nineteen thirties. Politicians and the few perceptive Economists [most notably Keynes] recognised that only government action could recalibrate the system. Capitalism - of a new kind - was able to survive in parallel with an interventionist state.
The resulting 'mixed economy' of the post Second World War era was very little like Marx's capitalism, but at its best it fostered the development of investor-funded businesses which provided employment, taxes and innovation that were the main contributors to economic growth. Even social democrat governments worked closely with 'civilised capitalism' and after 1970 they followed right-wing parties in privatising nationalised and state-created industries. It became the fashion to argue that this variant of capitalism was the best form of economic organisation. But - unfortunately for the long terms health of the economy - this heavily regulated and highly-taxed market economy became less and less like Marx's capitalism. Far from being concerned obsessively to invest in the expansion of productive facilities, Thatcherite capitalism became a system from which spending power could be extracted for taxes, for dividends [returned to collective investment funds: investment and unit trusts in the 'sixties, then pension funds in the 'seventies, then venture capitalists in the 'eighties, now hedge funds] and for increasingly inflated remuneration packages for directors, managers and star traders. That system of chaotic and inflationary economic disorganisation was not capitalism: nor was it anything like Leninism although it was controlled by the state through regulatory regimes, licensing systems, discretionary taxation, procurement policy for the overweening public sector, and the manipulation of monetary and fiscal policy.
The growth of the chaotic real-world business system was funded by the emergence of the parallel system of credit expansion in cyberspace that enabled firms and individuals - and governments - to borrow money to spend greatly in excess of what they earned. The gross overexpansion of that fantasy universe led directly to the credit crunch and to the slow realisation in the countries that were most affected by it that their economies had been despoiled of any solid foundation.
Some individuals have recently become rich by manipulating shareholdings and by creating or capturing intellectual property. Only a very few of them have behaved like classic Marxian capitalists and put their profits back into their real-world businesses as new investments; and even those few have realised that taxation will destroy their personal business empires on their death [if not before]. The portion of the economy that is controlled by individual capitalists [and by capitalist dynasties] is trivial; and the real economy is overshadowed by the nexus of fantasy businesses that is called casino banking.
We live with a systemic crisis: but it is decidedly not a crisis of capitalism: it is crisis caused by the absence of any system to ensure that the investment that is necessary for the future survival of the economy is being made. The present standard of living of every nation in Europe, except Germany, and of the USA is only maintained as it is by borrowing: most notably the borrowing that governments undertake to subsidise the welfare state. However incoherent, incomplete and insensitive the welfare state may be, it still maintains millions of people. The decisions about this system are taken, always have been taken, and always will be taken by politicians. Contemporary politicians have no serious business experience, no knowledge of Political Economy, no recognition of the nature or depth of the crisis that it is their duty to resolve. The mess was created by politicians, with the enthusiastic support of would-be capitalists who have been encouraged to 'go for it'. Few non-politicians believe that the political class have the intellectual power, or the integrity or the guts to meet these challenges. Recently the media have followed politicians in using diversionary tactics by decrying and individuals who can be characterised as 'fat cat' capitalists. But it is impossible to sustain the assertion that a predator class of 'bankers' is exclusively responsible for the recent crisis. The pseudo prosperity of the era from 1980 to 2007 was achieved by the symbiosis of the human economy with the finance generated in cyberspace: that was not capitalism.
By 1800 Political Economy taught that there were three factors of production without which economic activity could not occur:
land: which means both the site where production and/or trading takes place, and all the natural resources that are needed as direct and indirect components of the process;
labour is all the manpower and womanpower that has to be brought to bear to start and to maintain the production of the output and of all the components that go into making it, including the management of all stages of the process;
capital is the accumulated saving from the output of past times that is deployed to meet all the costs of running a business until an exchange of output for revenue to take place. The capital must cover rent for the site, the cost of the materials, and the wages of people who build and equip the factory and start production; it must also fund the original marketing of the output.
In a quest for transparency between 1800 and 1860 Political Economists developed the concept that there was a symmetrical means of computing the fair return to each factor:
Land was remunerated with rent which was the price that had to be paid for the use of the land for this purpose rather than for any alternate use. Landowners could chose to keep their estates undeveloped, for hunting; but they can optimise their income by farming it for crops [or leasing to tenant farments], or by letting sites for all sorts of purposes, including urban property which is most lucrative.
Labour was remunerated with wages that must be sufficient to attract the necessary labour, with the necessary skills and experience [where relevant]. The vast majority of people who are not peasants need to earn a living, and they learn that location, luck, experience, skill and physical fitness can attract differential wages. There are differing wage-rates for different jobs, and for the same job in different locations even within a small country. Intellectually able, fit, skilled people who are able and willing to migrate can maximise their earnings.
Capital was rewarded with profit which must be sufficient for the capital to be allocated by its owners for one selected purpose rather than for any possible alternative use. Instead of being invested in business, with all the risks that follow from such an investment, capital - in the form of cash - can be lent to the government [whose borrowing was believed to be absolutely guaranteed for the lenders]: so money will only be invested in trade and industry if it is at least likely to produce a return to investors that is greater than the rate that can be got from the government.
Political Economy earned the nickname 'the gloomy science' [or 'the dismal science'] because of the stark realities that it exposed [notably the Law of Diminishing Returns, the Iron Law of Wages and the Principle of Population]. Attempts to make aspects of the subject look more humane produced more confusion than clarity; and when clever concepts like the Labour Theory of Value were brought to bear in an attempt to explain wage differentials the oppotunities for reductionist quibbling became infinite.
After reading about these issues in depth, the young Dr Karl Marx declared that all the theorising masked one essential fact: that the system of production was not fair and was programmed constantly to become less fair. Progress in industry and in agriculture was derived from the application of ideas and of human ingenuity, but these natural resources - which brought about all the progress for mankind - could not be employed without capital and unless access was granted to land. Land was controlled by landlords, often aristocrats, who could demand increasing incomes for letting their land be used for factory and housing sites, and/or for growing crops more intensively, or for allowing quarrying and mining on and under their land. Even more outrageously unfair, to Marx's perception, was the fact that operators of factories and of rented modernised farms captured the surplus value that was generated in the process. The owner-managers of factories paid the lowest wages that could be forced on uneducated and anxious people, selected factory sites where they would pay as little in rent as possible [which is why so many works and mills were built in grim Pennine valleys] and bought raw materials from the cheapest sources: and then they sold the produce at the highest possible markup. The difference between what the output cost to make and to deliver and the price that was received at the point of delivery, was surplus value. The chap who took the money that represented the surplus value put the greatest possible amount of his takings into his firm as additional capital: which was used to expand the factory, increase the stock of raw materials and take on more labour. He squeezed costs as tightly as possible, and sold his produce for the highest possible price: so that he could invest even more in the next period and appropriate even more surplus value. The purpose was not to feed or clothe or otherwise benefit human beings: the sole objective of the new dominant class - the capitalists - was to accumulate more capital through the expansion of the system of production.
Marx constructed a political ideology based on the concept that the community must capture the control of economic activity from the capitalists: hence his system adopted the name communism: which had a special resonance with radicals after the experience of the Paris commune in 1870.
Transcending the Teutonic complexity of his formal writing, Marx and his associate Engels used journalism and pamphlets to popularise his message and to report on the obviously detrimental conditions in which many wage-earners lived, especially in the most industrialised areas of England. Anyone who combined Marx's explanation of the depredations of capitalism with the Laws of Political Economy was drawn to the conclusion that the outlook was bad. Capitalists controlled the system, and they faced diminishing returns; so they would demand even more surplus value proportional to the falling prices for which output could be sold. In an attempt to preserve their income they would reduce costs by cutting wages and demanding more work from their employees: the workers would have to take that, or become unemployed with a risk that they and their children could starve. The capitalists would also use their power vis-a-vis the landlords to reduce the prices they would pay for materials; and they would eventually dispossess the landlords either by buying them out or by the exercise of political power.
Capitalist and capitalism were created as terms of opprobrium, characterising a class and a mode of economic organisation that had emerged with modern industry and was perceived by the inventors of the concepts to be essentially inhumane. At the same time as Marxism became the ideology of the political 'left', between 1860 and 1900, successful businessmen in North America and Europe came to accept the term capitalist as a description of themselves. In the twentieth century as communism became more oppressive and inefficient after Lenin had grabbed power in Russia, the more businessmen and politicians in the 'free world' became proud of being 'capitalist'. The doctrine that a free market enabled investors of capital to maximise economic growth came to a shuddering check in the early nineteen thirties. Politicians and the few perceptive Economists [most notably Keynes] recognised that only government action could recalibrate the system. Capitalism - of a new kind - was able to survive in parallel with an interventionist state.
The resulting 'mixed economy' of the post Second World War era was very little like Marx's capitalism, but at its best it fostered the development of investor-funded businesses which provided employment, taxes and innovation that were the main contributors to economic growth. Even social democrat governments worked closely with 'civilised capitalism' and after 1970 they followed right-wing parties in privatising nationalised and state-created industries. It became the fashion to argue that this variant of capitalism was the best form of economic organisation. But - unfortunately for the long terms health of the economy - this heavily regulated and highly-taxed market economy became less and less like Marx's capitalism. Far from being concerned obsessively to invest in the expansion of productive facilities, Thatcherite capitalism became a system from which spending power could be extracted for taxes, for dividends [returned to collective investment funds: investment and unit trusts in the 'sixties, then pension funds in the 'seventies, then venture capitalists in the 'eighties, now hedge funds] and for increasingly inflated remuneration packages for directors, managers and star traders. That system of chaotic and inflationary economic disorganisation was not capitalism: nor was it anything like Leninism although it was controlled by the state through regulatory regimes, licensing systems, discretionary taxation, procurement policy for the overweening public sector, and the manipulation of monetary and fiscal policy.
The growth of the chaotic real-world business system was funded by the emergence of the parallel system of credit expansion in cyberspace that enabled firms and individuals - and governments - to borrow money to spend greatly in excess of what they earned. The gross overexpansion of that fantasy universe led directly to the credit crunch and to the slow realisation in the countries that were most affected by it that their economies had been despoiled of any solid foundation.
Some individuals have recently become rich by manipulating shareholdings and by creating or capturing intellectual property. Only a very few of them have behaved like classic Marxian capitalists and put their profits back into their real-world businesses as new investments; and even those few have realised that taxation will destroy their personal business empires on their death [if not before]. The portion of the economy that is controlled by individual capitalists [and by capitalist dynasties] is trivial; and the real economy is overshadowed by the nexus of fantasy businesses that is called casino banking.
We live with a systemic crisis: but it is decidedly not a crisis of capitalism: it is crisis caused by the absence of any system to ensure that the investment that is necessary for the future survival of the economy is being made. The present standard of living of every nation in Europe, except Germany, and of the USA is only maintained as it is by borrowing: most notably the borrowing that governments undertake to subsidise the welfare state. However incoherent, incomplete and insensitive the welfare state may be, it still maintains millions of people. The decisions about this system are taken, always have been taken, and always will be taken by politicians. Contemporary politicians have no serious business experience, no knowledge of Political Economy, no recognition of the nature or depth of the crisis that it is their duty to resolve. The mess was created by politicians, with the enthusiastic support of would-be capitalists who have been encouraged to 'go for it'. Few non-politicians believe that the political class have the intellectual power, or the integrity or the guts to meet these challenges. Recently the media have followed politicians in using diversionary tactics by decrying and individuals who can be characterised as 'fat cat' capitalists. But it is impossible to sustain the assertion that a predator class of 'bankers' is exclusively responsible for the recent crisis. The pseudo prosperity of the era from 1980 to 2007 was achieved by the symbiosis of the human economy with the finance generated in cyberspace: that was not capitalism.
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