Monday, October 20, 2008

dead economists for new times

It really is quite remarkable who the financial and political elite have turned to in order to understand the ongoing crisis. Two economists stand out: John Maynard Keynes and Karl Marx.

As my good friend Ardeshir Sepehri of the University of Manitoba pointed out, in order to understand the times, one would do very well to read Chapter 12 of Keynes' General Theory of Employment, Interest and Money, written in 1936. Indeed, as Keynes wrote in 1933, in the absence of state intervention to save capitalism from its tendency towards crisis, one could expect

'the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict'.

The U.S. government, and in particular Treasury Secretary Hank Paulson, along with the U.K. Prime Minister, Gordon Brown, have rediscovered the virtues of Keynesianism after being strongly involved in the deregulation that got the world into this mess in the first place.

French President Nicolas Sarkozy has been doing slightly different reading, stating that 'we need to found a new capitalism, based on values that put finance at the service of companies and citizens'. He reached this conclusion apparently reading Das Kapital volume 1, which some people spotted him reading last week.

Marx understood the mysteries of finance, writing

'To the possessor of money capital, the process of production appears merely as an unavoidable intermediate link, as a necessary evil for the sake of moneymaking. All nations with a capitalist mode of production are therefore seized periodically by a feverish attempt to make money without the intervention of the process of production'.

We have been so seized! I suspect that these two political economists will be read a bit more carefully in the next few months than they have been in the last few decades. At stake: the need to end the de-politicization of money, which has been underway for 60 years, and which has allowed, in an ever increasing way, for government and finance to become increasingly separated. Although this de-politicization took place in the name of Keynes, he would never have subscribed to it; and, of course, Marx would only have seen it as the logical outcome of an increasingly irrational economic system.

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