1848+: Last and First Men

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The Intellectual Situation
On Your Marx
Neoliberalism on the rocks

This article originally appeared in the Intellectual Situation of
Issue 8 (“Recessional,” Fall 2009).

The first intellectual consequence of the economic crisis was to
undermine neoliberalism—or the belief in the sufficiency of
markets to secure human welfare—as the age’s default ideology.

The second was to prompt a hasty resurrection of Keynes. “We are
all Keynesians again!” the ghost of Richard Nixon might have
declared as Gordon Brown and Barack Obama, leaders of the nations
most squarely behind the neoliberal push of the last thirty years,
changed the Anglo-American tune and, this past winter, begged
their European colleagues to stimulate the Continental economy
with borrowed money. The crisis also made the economists Paul
Krugman and Nouriel Roubini into the first Keynesian superstars
since John Kenneth Galbraith. Their recommendations, on their
invaluable blogs, of still vaster countercyclical spending and the
temporary nationalization of banks were not taken up by the Obama
administration, but they did confer new respectability on the idea
of close state involvement in the economy.

But the Keynesian revival, so far, is partial and expedient rather
than thorough-going. Keynes’s “somewhat comprehensive
socialization of investment” remains taboo, and when Hyman
Minsky’s famous reinterpretation of Keynes was rushed back into
print last year (Minsky developed through Keynes a theory of
bubbles and their bursting), the author of the preface to the new
edition assured readers that Minsky’s own advocacy of public-led
investment could be ignored. There are at least two Keyneses: the
tinkering inspiration for the so-called neo-classical synthesis,
who demonstrates the ultimate viability of capitalism in spite of
bouts of crisis; and the suave radical whose call for the “the
euthanasia of the rentier” doesn’t stop far short of taking the
rentier out to be shot. This second Keynes lives next door to the
Marx who in the Manifesto insisted on the “centralization of
credit in the banks of the state,” and hasn’t been heard from much
lately.

For the moment, the neo-Keynesian blog posts bear the same
relationship to the crisis as cognitive behavioral therapy does to
a patient’s troubles. Here is something insightful, helpful;
listen carefully and it might save your life. But when the acute
pain passes you will be left with the chronic problem of who and
what you are. The suffering individual has psychoanalysis to turn
to. In economics, the analogous route is Marxism, which like
psychoanalysis has a dubious reputation—and an explanatory power
and long-term perspective that its rivals can’t touch. With luck,
the next intellectual consequence of the crisis will be to pry the
lid off Marx’s tomb, since it is only from a Marxian standpoint
that the recent credit bubble can be understood in terms of the
structural problems it affected to solve as well as those it has
created.

From the first there were confused signs of a hunger for Marxist
thought. Back in the clammy depths of the market’s autumn plunge,
Robert Kuttner of the determinedly liberal American Prospect
acknowledged that in light of Treasury’s rescue plan the “Marxian
cant” designating the government as “the executive committee of
the ruling class” sounded perfectly just. And John Lanchester in
the New Yorker wanted to know, “Are there any unreconstructed
Marxists left, anywhere in the wild? (Universities don’t count.)
If there are, now would be a good moment for one of them to
publish a book saying that the man in the beard would regard
himself as having been proved right.” Here was a call for Marxist
ideas that simultaneously reimposed their ban. We might require
authors of Marxist tomes—but professors don’t count, only
freelancers. (Such a guy would be worth a New Yorker profile: for
instance, who loans him his shoes?)

Of course there are reasons for being suspicious of Marxism.
During the Third International and in the scattered sectarian life
it has led outside the universities since the Second World War,
Marxism has shown a susceptibility to dogma hardly equaled outside
of American economics departments. But the ideological rout that
Marxism began to suffer in the ’70s did what periods in the
wilderness are supposed to do: it discouraged bandwagon-jumpers
and enforced a new seriousness on those who stuck around. The
truth is that since the neoliberal era began thirty years ago,
Marxism has yielded some of its most formidable monuments of
economic thought. Two in particular are David Harvey’s abstract
and categorical Limits to Capital (1982), which as the restatement
and completion of a great thinker’s project easily outclasses
Minsky’s John Maynard Keynes (1975), and Robert Brenner’s
narrative and empirical Economics of Global Turbulence (2006),
which barely mentions Marx while vindicating, through an analysis
of the postwar American, German, and Japanese economies, the idea
Marx took from David Ricardo and made his own: the tendency of the
rate of profit to fall in a situation of free competition.

The need for a Marxist macroeconomics is patent in one small line
from Paul Krugman’s Return of Depression Economics: “In the early
1970s, for reasons that are still somewhat mysterious, growth
slowed throughout the advanced world” (our italics). And growth
had stayed slow, for reasons that to a mainstream economics
confessedly “shy of the grandest themes” (as the founder of
general equilibrium theory once put it) remain a baffling mystery.

The global rate of economic growth has declined from about 3.5
percent annually in the ’60s, to 2.4 percent in the ’70s, to 1.4
percent and 1 percent in the ’80s and ’90s, to 1 percent in this
decade—much of which single paltry percentage turns out to have
been illusory. Meanwhile, financial services, starting in the
early ’80s, took a larger and larger share of total income and
total profits in the world’s largest economy, until finally
finance had become, by last fall, the largest American industry,
accruing to itself a quarter of all US profits. This combination
of declining overall growth with burgeoning finance suggests that
the connection between finance and investment can’t have been the
alleged one: the direction of capital to its most productive uses.
So there must be a better way to characterize a situation—that of
the last decades—in which vast quantities of overaccumulated
capital (the neo-Keynesian’s “excess of desired savings”) circle
the globe in search of profits, while the vitality of capitalism
as a whole steadily diminishes.

Marxists differ in the details of their accounts of the postwar
economy, but the story, which ends for now in the cliffhanger of
the first contraction of the world economy since 1945, goes
something like this: The so-called Golden Age of postwar
capitalism from 1950–70—a time of rising wages, profits, and
investment—was the product of special and perishable
circumstances. The wartime destruction of the Japanese and German
productive base meant that, with the resumption of peace and
renewed growth in demand for non-military goods, all the major
industrial economies could for a time thrive without threat to one
another. But the maturation of European and Japanese industry
toward the end of the ’60s spelled the return of mutually
destructive competition. Firms producing internationally tradable
goods (cars, electronics, et cetera) could only survive by
reducing prices, which in turn reduced profitability. And yet the
capital sunk in manufacturing plants was enough to make
capitalists reluctant to exit a given product line in spite of
reduced profitability. Besides, governments don’t like to see big
firms fail even when they can’t compete. (The Obama administration
has lately proved almost as indulgent of GM as the state-directed
Japanese banks have always been of Japanese industry.) And the
more recent advent of China as a manufacturing power only
exacerbated the situation, as the Chinese (to quote Brenner)
“continued to expand capacity faster than it could be scrapped
system-wide and to rain down torrents of redundant, increasingly
high-tech goods upon the world market.”

The orthodox story blames declining profitability (and price
inflation) during the ’70s on the excessive demands of labor—a
plausible enough explanation until you consider that the worldwide
defeat of labor since the ’80s has failed to restore prior levels
of growth. The high wages of the early ’70s are long gone. What
has endured and intensified since then is a systemic bias in favor
of short-term financial speculation over longer-term productive
investment. The replacement of the gold standard by floating
currencies encouraged capital to flit from country to country in
search of returns magnified by any temporary overvaluation of this
or that national fiat money. At the same time, information
technology sped transactions along at a new rate and volume. What
in 1983 was a daily mass of $2.3 billion in international
financial transactions had become $130 billion by 2001. Only about
2 percent of the same sum would be necessary to maintain
international trade and productive investment.

Meanwhile production is guided by the search for low wages. The
export-led growth of first Germany and Japan, then the “Asian
Tigers,” then China with its endless reserve army of labor has
flooded the world with cheapening goods; and between 1985 and 1995
the US itself staged a manufacturing revival through the
exporter’s proven formula of cowed labor and an undervalued
currency. But this is supply: what about demand? The fundamental
problem with workers (to whom as much money as possible should be
denied if commodities are to be affordable) is that they are also
consumers (to whom as much money as possible should be supplied if
they are to buy commodities). Marxists aren’t kidding when they
talk about the contradictions of capitalism. In the end, as Marx
wrote, “the ultimate reason for all real crises always remains the
poverty and restricted consumption of the masses.” The result of
declining or stagnant real wages since the ’80s has been global
industrial overcapacity: too much plant turning out too much stuff
for not enough buyers.

The structural solution to this dilemma was as ingenious as it was
unsustainable. If the global wage-bill couldn’t cover all the
world’s gimcrack goods and coastal vacation properties, then
consumers—especially American, but also European—had to be
extended a new line of credit. They would borrow money to buy
houses, and then borrow more money, to buy other stuff, against
the rising value of these houses! Of course many new home-buyers
plainly couldn’t pay their mortgages; the mortgages were granted
on the assumption that someone else ultimately could and would. So
present consumer demand was leveraged against a future demand for
which there was no plausible source. For mortgage brokers
operating under the originate-and-distribute model this didn’t
matter; they had already pocketed their commissions. And those
bundling iffy mortgages into securities comforted themselves with
a rhetorical question: What was the likelihood of homeowners
defaulting en masse?

The venality and self-deception of the brokers, rating agencies,
and bankers are now notorious. By comparison, David Harvey’s most
audacious theoretical move, in Limits to Capital, seems sensible
enough: How can Marx’s labor theory of value (which identifies
value as “socially necessary labor time”) be reconciled with land
prices, given that land is obviously not the product of human
labor? Harvey’s answer was that under capitalism land becomes “a
pure financial asset”; land price is a claim on future revenue
treated as a present-day asset. “Mortgages,” Marx said, “are mere
titles on future rent.” And Harvey completes his thought: “Land
price must be realized as future rental appropriation, which rests
on future labor” (our italics). The big risk, naturally, is that
you will attribute to real estate far more present-day value than
can later on be returned to it by labor (in the form of the
portion of total income devoted to housing). A bubble occurs not
when people pay for real estate with money they don’t yet have—as
always happens, given the availabilty of credit—but when they pay
with money they will never have, out of wages they will never
receive—out of wages no one will ever receive. This past fall the
papers were full of “analysts” wrapping their heads around a new
idea: “Home prices,” said one, “are going to have to start
reflecting people’s income.”

In the world at large, if not always in the bubble-addicted US,
recessions have been deeper and longer and recoveries ever more
feeble since 1973. Already the recovery after the recession of
2001–02 was the weakest on record, adding virtually no new jobs to
the rolls. The main stimulus to consumption was the confection of
fantastic, improbable, and finally fictitious paper assets. And as
Brenner wrote in 2006—were he not a Marxist he would be counted
among the prophets of the crash—“the US Fed’s continuing
dependence on cheap credit and asset-price bubbles to provide the
subsidy to demand to keep the economy turning over appears to have
only delayed, but not really avoided, the economy’s obligatory
responses to the over-capacity, fall in profitability, and
asset-price crash of 2000–01.” In this way alone—alas—the Bush
Administration never happened.

The motor of accumulation has been sputtering for nearly four
decades, and its coughs can be heard again now that the roar of
combusting paper wealth is dying down. This doesn’t mean
capitalism or even growth is at an end. Economists of all kinds
have pinned their hopes on the transformation of laboring and
saving Chinese into hardy consumers. In any case, the US
consumer—a ravening appetite in a paper house—appears to be
finished as the world’s buyer of last resort. It would add a nice
dialectical twist to the future history of our period if it could
be said that, around the time the post-Maoist Chinese took up
shopping, the post-bubble Americans turned to studying Marx.