Thought for the day: Saving capitalism from neoclassical economists
from Merijn Knibbe
I just read some newspaper articles on the foreclosure disaster in the USA. The problem seems to be larger than we expected:
– left wing Karl Marx
– as well as right wing Friedrich Hayek
would both say exactly the same thing about this crisis: “Capitalism needs rules to function”. Hayek would call this ‘the rule of law’; Marx would call this ‘bourgeouis property rights’. Neither of them would understand how any capitalist government, inspired by neo classical economics, could sell out to badly run banks. Please read James Galbraith (on this blog) on this. Some people credit Keynes with ‘saving capitalism from itself’. At this moment, capitalism seems to be in need of somebody who saves it from neo classical economists who ‘assume’ that markets always work well.
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Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Society needs rules to function, irrespective of the nature of the prevailing economic system. The idea is to make those rules work for as many people as possible. Without them the big brutes swallow up the smaller brutes and ultimately each other, leaving a compost heap behind, from which the process starts all over again.
Capitalism doesn’t need rules. Society at large needs rules to restrict the damage that capitalists can do, and to prevent the concentration of wealth and power that erodes civil liberty. Both Marx and Hayek were wrong. They advocated utopian visions that attract the faithful but are inoperable in an inherently uncertain and cognitively constrained world. Our current problem is that neoclassical economics is heir to Hayek. Its founders took him seriously rather than metaphorically. They created an economics to provide an intellectual basis to justify capitalism. They did not study real markets and real economies, they studied idealized versions that justify their political preconceptions. Like all utopias they have great allure, and all fail the test when implemented.
The moral here is not to fall in love with visions, either of the left or of the right.
Oxygen is one of the most corrosive elements in the universe. Yet we need it. So we mitigate and manage the damage it can do in order to extract the value it offers. So too with capitalism. It needs constant restriction and oversight. Capitalists cannot be trusted to deliver social welfare,- that’s for the rest of us to ensure – but we need them to get on with making money so we can benefit from their invention and ingenuity.
None of this is new: didn’t Adam Smith warn us about the ill effects of meetings between business men? Apparently neoclassical economists don’t read “the Wealth of Nations”. Perhaps they should.
I think both Marx and Hayek have economic theories based on humans being angels. Neither one takes sin seriously. You do not have to be a fundamentalist (Christian or otherwise) to see the moral/ethical/religious flaws in both their thinking. The subjectivism of Hayek is mind blowing to me. At times I wonder if he thought anything was objective.
In retrospect, it was socialism that probably saved capitalism from itself, because it forced bosses to make concessions, which in the end created the vaunted middle class to consume all the products capitalism spews out.
That there is no significant left or union movement in the United States means that the bosses really have no motivation to reform, which means the economy is headed for more frequent and greater crises as AD atrophies.