On macroeconomics, in memory of David Graeber

David Graeber died a couple of months ago on 2nd Sept. I never met him but was introduced to his work by my son who pointed me at “On Flying Cars and declining rate of profit“, and he was introduced to me as one of the world’s leading anarchist thinkers; he was teaching at Goldsmiths which is close to where I live. I didn’t feel it appropriate to write anything at the time, however I was clearing up my desktop and came across “Against Economics“, which is a review of Robert Skidelsky’s book, “Money & Government: the past and future of economics”. It is through these two articles, and his tweet stream, that I came to know him; there is much wisdom in these articles. In this blog post, I comment on three things which I think especially important. Firstly, the nature of capitalism has changed. Capitalism is no longer progressive, and its defenders are moving towards arguing there is no alternative. The problems that the economic system needs to solve are no longer growth and the resource allocation required to deliver it, but, in his words, “how to deal with increasing technological productivity, decreasing real demand for labor, and the effective management of care work, without also destroying the Earth”. This would also require an equitable distribution of wealth and income, the lack which is one of the chief criticisms of capitalism. Secondly that amongst the fatal flaws in economics as a science is the truth that systems that promise a benevolent equilibrium cannot rely on expectations of exogenous rewards to act as stabilisers. Thirdly, I look at his critique of the quantitative theory of money, and his positioning of credit and debt as an exclusively social construct.

I had a brief correspondence with him on twitter when he tried to join the Labour Party in 2020 and was rejected by the membership department because he didn’t have a vote, what with being an American. Who knows who stopped it, whether they be the new Stalinists appointed under Corbyn or a bottom feeding right winger left over from the previous leaderships. I don’t expect Starmer or Fletcher to fix this sort of thing mainly coz they don’t have the will but Labour should have been proud that such a clear sighted and visionary left wing thinker wanted to join.

In “Flying Cars …”, Graeber argues that capitalism has stopped innovating and that the promise of futurism is a new opiate of the masses. He argues that the social controls of capitalism have evolved through penetration of the state and its military and research budgets into a bureaucracy. He substantiates this by talking about academia, documenting the search for grants and defensive style of intellectual property development, which diverts effort from invention. In terms of the bureaucratic nature of US Corporations, I would add my experiences in joining, working and travelling for the US owned Sun Microsystems, in particular my experiences at San Francisco Airport. He also talks about the new generation of economic controls, i.e. off shoring, financialisation, and reduced employment rights (particularly zero hour contracts). We should also add the growth of lobbying and in the US and the “Citizens United” rulings which gave corporations the 1st amendment right of free speech, which means a freedom to spend money on lobbying. I see his conclusions, summarised by two quotes from the article,

Defenders of capitalism make three broad historical claims: first, that it has fostered rapid scientific and technological growth; second, that however much it may throw enormous wealth to a small minority, it does so in such a way as to increase overall prosperity; third, that in doing so, it creates a more secure and democratic world for everyone. It is clear that capitalism is not doing any of these things any longer.

David Graeber – Of Flying Cars … The Baffler

But claims for the inevitability of capitalism have to be based on a kind of technological determinism. And for that very reason, if the aim of neoliberal capitalism is to create a world in which no one believes any other economic system could work, then it needs to suppress not just any idea of an inevitable redemptive future, but any radically different technological future. Yet there’s a contradiction. Defenders of capitalism cannot mean to convince us that technological change has ended—since that would mean capitalism is not progressive. No, they mean to convince us that technological progress is indeed continuing, that we do live in a world of wonders, but that those wonders take the form of modest improvements (the latest iPhone!), rumors of inventions about to happen (“I hear they are going to have flying cars pretty soon”), complex ways of juggling information and imagery, and still more complex platforms for filling out of forms.

David Graeber – Of Flying Cars … – The Baffler

While Marx identifies the key contradiction of capitalism. that it requires its nemesis, the proletariat, Graeber adds that it can no longer deliver invention and progressive change.

Personally I have struggled to fully understand how disruptive software is to models of capitalism and its economics; the micro-processor was invented in 1974, but software has the properties of both capital and stored labour, copyright confuses, as does Remenyi’s proposition that ROI is useless for evaluating software investments and we must ask, “do the new machines obviate the need for a proletariat”. If not the fundamental battles between humanity and the bourgeoisie becomes a battle of democracy and we can see around the world how capitalist states are retreating from democratic norms and the rule of law.

On Economics, a science?

I came across “Against Economics” more recently, it is a book review, but replete with Graeber’s own views. He criticises academic economics as oppressively homogenous, and rails against the confusing pseudo science and maths. I know he is not alone, as many have asked that if economics is so scientific, how come it didn’t predict the 2008 crash and why it’s so hostile to non-mainstream views. In the review, he says,

economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths.

David Graeber – Against Economics – New York Review of Books, DEC 2019

He suggests this road is a mistake. Personally I quite liked the maths and pseudo-science, even though my maths was never really good enough to allow me to play but mainly due to the conceit that we were on the road to Asimov’s psychohistory. Looking back, I can see it wasn’t and the lack of predictive accuracy and the reliance, then and now on homo economicus were signposts that it wasn’t to be for a long time, if ever. However the development of massively distributed, commercial real-time computing enabling new feasible models, particularly when combined with monte-carlo and other simulation techniques make the analysis of then immeasurable variables a possibility. This is a technological tendency towards accurate prediction and possibly an enabler of a democratic command economy, although the bourgeoisie and their states are busy building a surveillance and group think machine to subvert democracy or extend the dictatorships.

Another of economics’s failings identified in Graeber’s writing with which I agree is the obvious conceit that a system that inexorably has a virtuous outcome, but requires actors to bet against the outcome cannot be an accurate description of the reality. Why would a system that promises a good outcome but relies on participants to bet against it’s inexorable success possibly work. i.e. the perfect market delivers normal profits, marginal cost pricing, and efficient resource allocation, all of which are assumed to be good, but it needs super-profit seekers to work, and super-profits cannot co-exist with the good outcomes; I suppose its a long term/short term thing, but the investment gestation periods for entry into these markets are not short term. Graeber applies this lesson to the capital markets, which are essential to making the economic system effective at deciding what to make or do, and with what to make and do it.

He takes a cue described below, and summarises Skidelsky’s book, identifying the importance of the issues of Money & Government.

one of the most significant books to come out of the UK in recent years would have to be Robert Skidelsky’s Money and Government: The Past and Future of Economics. Ostensibly an attempt to answer the question of why mainstream economics rendered itself so useless in the years immediately before and after the crisis of 2008, it is really an attempt to retell the history of the economic discipline through a consideration of the two things—money and government—that most economists least like to talk about.

David Graeber – Against Economics – New York Review of Books, DEC 2019

and describes the central contention in economics, as thus,

an endless war between two broad theoretical perspectives in which the same side always seems to win—for reasons that rarely have anything to do with either theoretical sophistication or greater predictive power. The crux of the argument always seems to turn on the nature of money. Is money best conceived of as a physical commodity, a precious substance used to facilitate exchange, or is it better to see money primarily as a credit, a bookkeeping method or circulating IOU—in any case, a social arrangement?

David Graeber – Against Economics – New York Review of Books, DEC 2019

I assume that in his book, Debt, the first 5000 years, among other topics, he looked closely at the ideological war between the advocates of the quantitative theory of money (QMT) and those that argue it is exclusively credit and thus a social construct. In the review, Graeber, ascribes QMT’s invention to Jean Bodin (1658) suggesting the debate on monetarism has been going on for nearly 350 years.

On QMT

In the article, Graeber describes the cycle, its inevitable failure and yet its continuous after-death resurrections, albeit with new priests and prayers. He identifies Hume as the originator of the theory that short term shocks would create long term benefits and quotes Skidelsky in cataloguing the advance and retreat of QMT from 1797 through to the early ’80s when Thatcher and Reagan resurrected it; following what seems to be a rigid pattern of advance and retreat and however unsuccessful the policies are, the ideology survives, despite the fact that its period of greatest retreat, the post 1945 boom is known as the golden age of economics. One of Skidelsky’s quotes defines the short term merely as the period in which equilibrium is not delivered.

Ever since Hume, economists have distinguished between the short-run and the long-run effects of economic change, including the effects of policy interventions. The distinction has served to protect the theory of equilibrium, by enabling it to be stated in a form which took some account of reality. In economics, the short-run now typically stands for the period during which a market (or an economy of markets) temporarily deviates from its long-term equilibrium position under the impact of some “shock,” like a pendulum temporarily dislodged from a position of rest. This way of thinking suggests that governments should leave it to markets to discover their natural equilibrium positions. Government interventions to “correct” deviations will only add extra layers of delusion to the original one.

Robert Skidelsky – Money & Government: the past and future of economics – 2018

One experience that seems relevant is that when visiting my alma mata, Exeter, in 2003, I looked up the 1980 economics exam papers; they had put the 1977 ones, which I had taken away, and there was a question asking to ompare and contrast Keynesianism and Monetarism. I rudely stated to my companions that one was a rigorous and long lasting theory of macro-economics, the other a fashion statement. Graeber & Skidelsky suggest that I may not have been right, but it is interesting that Keynes magnum opus usually just known as the General Theory is called “The general theory of employment, interest & money”. Our later fixation on fiscal policy and demand managemenet is based on the policy implications and later additions to body of theory; the contents pages of the General Theory do not mention fiscal policy.

Conclusions and contradictions

I draw two lessons from the conclusions,

There is a paradox here. On the one hand, the theory says that there is no point in trying to profit from speculation, because shares are always correctly priced and their movements cannot be predicted. But on the other hand, if investors did not try to profit, the market would not be efficient because there would be no self-correcting mechanism….

David Graeber – Against Economics – New York Review of Books, DEC 2019

This is another way of describing one of economics’s central paradoxes. Why would a system that promises a good outcome but relies on participants to bet against it’s inexorable success possibly work. The theory must be wrong, and thus the science cannot explain the virtue of the system; its malevolent side effects become much more unacceptable.

… the existing discipline is designed to solve another century’s problems. The problem of how to determine the optimal distribution of work and resources to create high levels of economic growth is simply not the same problem we are now facing: i.e., how to deal with increasing technological productivity, decreasing real demand for labor, and the effective management of care work, without also destroying the Earth

David Graeber – Against Economics – New York Review of Books, DEC 2019

This change of focus is what made me write this article, which requires economics and economic policy makers to focus on innovation, and a new age resource planning macro-solutions. I am also reminded of why I studied economics in the beginning, and my early discovery that the assumptions are constructs to stop us enquiring about the alternatives.

Notes

1. Shortly after I first read “Flying Cars …”, I made a page on my wiki, which discusses the article and hosts an unfinished storify by me about “Flying Cars…”.
2. Graeber’s wikipedia page includes a listing of the rest of his body of work.
3. I have posted my reading list for this article on my wiki.
4. The featured image is from http://asb.org.uk/, the picture flying car is from Euronews, I have not made either available and am unable to identify the copyright owners. They has been cropped and resized; they are stored for reasons of longevity, addressability and performance. This has no economic impact on the original publishers.