Thursday, 9 October 2008

An AKM of economics

An AKM of economics (P.Murry)

As Not everybody in Green Left nor everyone who reads GL publications are economists, and neither am I,(although I did once teach introductory economics toAccess (pre-university) students), I thought I'd write a short intro to what probably are three maineconomic theories, since terms like 'Keynesian ', 'Monetarist' etc. are being bandied about a lot recently without much explanation as to what they might mean. This is not a comprehensive or particualrly critical account and some glaring ommissions from it and from the theories it considers are the environment,globalisation, and the consideration of alternative possible economic arrangements such as commons, co-ops and open-source; but anyway...

A is for Adam Smith (1723-90) said by some to be thefirst modern economist and originator of 'Classical' or 'Free Market' economics. Observing manufacturing industries and markets during the early phases of the British industrial revolution, Smith claimed that without any conscious direction of how much to produce and what price to sell at for the market as a whole, the aggregate of all such decisions by producers, sellers and buyers could result in the buyers getting the quantity of goods that they wanted at a price that they could pay. In other words if a market worked properly producers profited and consumers got what they wanted and government or other regulation of prices and or supply was unnecessary. If a market moved away from this 'equilibrium' it could correct itself eg if suppliers charged too much their prices might be forced down by consumers refusing to buy and or new producers entering the market to sell at lower prices. Similarly prices which were too low could not survive long because producers could not produce at a level where they could not cover costs and make some profit.

Although hailed as a guru by opponents of state intervention in economics Smith did acknowledge that things did not always work out this way, he cynically observed that producers seldom associated with each other unless they were planning to conspire to exploit the public. If groups of producers got together to fix prices ('oligopolies' or 'cartels') they could rig a market as they could set a high price which consumers would have to pay because, if the fix worked properly, there was no where else to buy from except the price fixers.

This particular problem with unregulated markets has led to the situation where many governments that advocate non interference in markets interfere in them through bodies such as the British Monopolies and Mergers Commission, which exist to prevent price fixing, oligopolisation etc, so that the market works in a 'properly' competitive fashion because this, it is believed, will benefit the consumer.

Such government intervention may not have been envisaged by Adam Smith but is discussed in the work of his twentieth century followers, the 'neo-classical economists', sometimes called the Chicago school because this was the university of one of their leading lights, Milton Freidman. It was the the neo-classicists who through think tanks such as the Adam Smith institute influenced thepolicies of world governments such as Thatcher's, Reagan's, Bush's and Blair's, into minimising the state controlled sector of the economy and marketising sectors which could not be privatised on the grounds that markets led to efficiency. They have also influenced the World Bank and International Monetary Fund into forcing poorer nations into cutting backstate expenditure, so millions of deaths world wide are at their door, and after the CIA colluded inAllende's overthrow in Chile they got a whole country to play with.

However the neo-classical economists were mainly a mid to late twentieth century development and at the timeof the Great Depression of the 1930's, sparked off by the Wall St crash of 1929 a primitive free market theory, that in Britain was called the Treasury view, held sway which advocated cutting back on state expenditure as a cure to inflation and unemployment.

A British economist and diplomat John Maynard Keynes advocated just the opposite. Keynes argued that governments should spend money to pay previously unemployed workers to work. It was important that the money went to this group economically, (although Keynes probably also had moral and political reasons for wanting to put money in their pockets), because being poor they were very likely to spend all they could get.

This in turn and in theory would generate more employment in industries supplying what the previously unemployed wanted to buy and thus create employment for more previously unemployed people who in turn would spark more economic activity by spending the money that they had not previously had. Thiseffect was termed the 'positive Multiplier' and President Franklin Roosevelt in the USA tried to putit into effect through his new 'New Deal' policies which entailed government job creation schemes. Sadly for Keynes, who was a liberal politically, it was fascist militarism in places like Hitler's Germanyand Mussolini's Italy that really got positive multipliers going through creating demand for arms and boosting recruiting into the military; and they only really took effect in non-fascist capitalist nationswhen these responded by arming themselves and going towar.Be this as it may Keynesianism or neo-Keynesianism has come to mean economics which advocates state expenditure and intervention to prevent crises of capitalism.

In Britain in the 1950's and 60's this became associated with the aims of both Labour and Conservative parties to maintain as near as possible full employment (i.e. under ½m registered unemployed), both used nationalised industries, (e.g. coal, steel,rail, electricity , gas nationalised by the post-WW2Labour gov't) to try to achieve this aim. Nationalisation is probably not a strictly Keynesian measure and was a means which socialists and social democrats chose to use to implement demand stimulation via the increase in gov't expenditure, but they probably also chose it for other reasons i.e. that under capitalism work was organised for private profit rather than public good.

Such an assertion could be made on the basis of an analysis of employment under capitalism made by Karl Marx, (but probably not uniquely his). This is , that it was an unequal relation between an Employer (or Bourgeois), who owned the means of production (e.g. a farm or factory), and a worker or proletarian who owned nothing but his/her ability to work (labour power) and was therefore economically coerced into working for the employer on terms that the employer set. These terms would be that the worker did not receive the full value of the goods or services that they produced and that a slice of this vale (aka surplus value) was retained by the employer. This process can be called exploitation.

Marx predicted regular economic crises in capitalism,which would lead to an concentration of power and wealth in fewer and fewer hands' and as smaller businesses, self employed people etc. were bankrupted, more and more would become paid employees of the bourgoisie. He also predicted that the proletariat would become aware of its exploited position and either by revolution or electoral means take over society and the economy so that it was no longer run for the profit of the few.

Marx was vague about exactly how this would be done, he did specify that here could be a post-revolutionary phase known as the 'dictatorship of theproletariat'. It was probably later political leaders claiming to modify Marx in various ways (eg Lenin,Trotsky, Stalin, Mao, Castro) who interpreted this to mean the nationalisation of almost all businesses large and small. In view of the failure of such state owned command economies to deliver many goods,including sometimes basic essentials, to people, not many contemporary Marxists would advocate such an arrangement, and when Marxists come together with those elements of the green movement who espouse the virtues of small localised businesses over vast multi nationals and /or conglomerates, a discussion developments as to what free enterprise should be allowed and under what restraints, instead of advocating its total elimination; and also there is now increasing consideration of whether alternative economics arrangements to state and market (eg commons, co-ops and open-source) might provide a blueprint for a better future.

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