Beyond Boom and Crash
We live in the age of CNBC and the Fox Business Network. That might, if my grasp of history was a bit less shaky, lead me to wonder when someone was going to get around to saying,”Of course we do, America means business. ” But someone already did.
Today I’m reaching back to the mainstream of the recent past. That would be 35 to 40 years ago, just before we started down the current path, when things looked just a little bit different. And I’d suggest you can’t get much more mainstream than the author of the second most popular economics text ever published. Who’d have thought it possible that he was a socialist?
Read that last sentence again. It’s probable that a majority of students who take a college-level economics class use Paul Samuelson‘s Economics, but for a great many others the text they use was penned by Robert Heilbroner, the Norman Thomas professor of economics at the New School for Social Research.
The present volume is a period piece, published in 1978, which puts it squarely in the middle of that rolling mess we went through in the 1970s: oil shock, complete with gas rationing; Whip Inflation Now, which was really, we found out, stagflation; and, ultimately, Jimmy Carter and the malaise which troubled him as much as his cardigan sweater troubled me.
Lest you think I’m overselling just how bad folks thought things were, here’s the book’s opening sentence: “Another worldwide crisis of capitalism is upon us.” Wow, you’d think it was 2008 or 2009 with an opener like that.
My suspicion is we owe that first salvo to an editor looking to capture the attention of a casual browser. I say that because before you get to page 40, which is roughly the one-third point in this slim volume, Heilbroner has laid out a sketch of the capital accumulation process as described by Karl Marx. And here’s how he concludes that discussion:
” Crisis thus appears to be not so much an exceptional occurrence as an event whose appearance is to be expected, although one never knows quite where or when.” (p.37)
That’s a far cry from his opener which might belong in the ‘boy who cried wolf’ museum.
For those whose sense or study of economics is rooted firmly in the neo-classical school, these first 37 or so pages are as fine a summary of Marx as you’ll find anywhere. It will spare you all the pains of high German-academic prose, the requirements of dialectical reasoning and the back pain that comes with carrying around Das Kapital.
It might also surprise you because, stripped down, and leaving aside the messy question of who creates value, the mechanics are not terribly different from what Adam Smith laid out. The dirty little secret of social science is that Marx has always been a better and more original sociologist than he ever was an economist.
But let’s get back to the text. Having sketched the plumbing, Heilbroner introduces “…an even larger cause of instability.” (p. 38) That bogeyman is inflation. At this juncture, approaching the 7th anniversary of the Lehman collapse, all the talk is about the perils of disinflation (a Google search from Sept. 17, 2008 to June 6, 2015 deliver 54,200 results if you’re curious or quantitatively oriented), so the good Dr.’s perspective might puzzle you.
In hindsight, inflation was less an economic problem than a political one. The momentous event recalled in a nearby photo resounds to this day in the United States. For economists, though, a little inflation is a good thing. And for an historian, it might even be a great thing. If you have any interest in the subject at all, I recommend David Hackett Fisher‘s The Great Wave. (We enjoy things that others find a bit dry here at AHC.)
Heilbroner, though, ends his discussion of inflation in a somewhat unexpected place. After reprising the usual pluses (for debtors) and minuses (for creditors) of inflation he turns to Lord Keynes. That great man, you may recall, developed the idea that government deficit spending could stimulate the economy by putting cash in the hands of consumers. Here’s Heilbroner, the Socialist friend of the working man, on how that worked out:
“Government itself thereby becomes a major source of economic instability and crisis as a direct consequence of trying to control the inflation for which its own practices and policies are in large major responsible.” (p51)
I can already hear the pencils being sharpened over at the Heritage Foundation.
Alas, that moment, which some might see as one of startling clarity, was but a fleeting thing. The problem is bigger than a built-in tendency to have crises. And so tinkering is never going to ameliorate, much less eliminate, the system’s periodic descent into crisis. Nope, there’s only one way to fix this thing until the millennium arrives:
“The shift is to economic planning, the only institutional transformation that can in my opinion, give a new measure of life, albeit a limited one, to the capitalist system.” (p. 79)
We’re definitely not in Kansas anymore and maybe we never were. Yet instability in capitalism is not an unknown or an unexpected phenomenon. If you recall your American history (the date memorizing branch) the US experienced financial crises in 1837, 1873, 1877 and 1893 and those are just the ones I can recall from the 19th century. Among economists, Hyman Minsky, who had a lot to say about instability, recently enjoyed a brief vogue.
Whether Heilbroner is right or not remains to be seen. In the 37 years since this book was published the US has walked in almost entirely the opposite direction. In some ways that’s been a success. In others not so much. Meanwhile, the economic juggernauts of the moment reject both the hybrid social democratic models of Europe and the wild, wild west of the US.
One wonders what Heilbroner would make of a people’s republic replete with billionaires, lacking even rudimentary forms of social insurance and spending enormous amounts of effort trying to control the hearts and minds of its citizens.
We might have to wait 37 years to see how that experiment turns out.