What would an economics for the left look like? It seems to me that it requires two things. First, it needs an economic theory derived from a close observation of the way the US economy actually behaves, and which creates a framework in which society can choose its goals and implement them effectively and as efficiently as possible. Second, it requires a leftist program, one clearly differentiable from the program of the conservatives and neoliberals which has so miserably failed millions of us, and one that people can understand and can see how it would make for a better world.
At the beginning of the 20th Century, the productive sector was dominated by a small group of capitalists who were primarily industrialists and financiers. Their control was secured by both federal and state governments in the name of protecting property rights and preventing Socialism. The interests of the rest of the people were for the most part ignored by the government. On the rare occasions when some piece of protective legislation was passed the courts struck it down. When a strike threatened the profits of the capitalists, the courts were quick to legitimate the use of force by governments. Eventually there was a small but effective Socialist Party. The capitalists responded by conflating Socialism with Anarchism and Communism, leading to the Palmer Raids, the jailing of the Socialist leader Eugene Debs, and other actions to crush all opposition to the dominant capitalist ideology.
Socialism came back in a milder form during the Depression, leading to the New Deal under FDR. Many of the major changes were made possible by fear of the Communists, particularly their support of the rights of African-Americans. That fear became stronger during WWII, and the Democrats purged Socialists from their party, starting with Henry Wallace, and the labor unions purged every last Communist and Socialist after the War. That left economics to a temporarily chastened breed of capitalists. By the 1950s there was no effective left opposition to capitalism. What C. Wright Mills called the Capitalist Celebration took over all economic discourse, and with no opposition, it was easy for a new breed of capitalists to push for the Gilded Age form of capitalism which we now call Neoliberalism.
The economic theory underlying this ideology had its roots in the 19th Century. William Stanley Jevons, one of the inventors of the theory of marginal utility and one of the first people to use the mathematical method in economics, wrote in The Theory of Political Economy, § 1.29 (1871).
I wish to say a few words, in this place, upon the relation of Economics to Moral Science. The theory which follows is entirely based on a calculus of pleasure and pain; and the object of Economics is to maximise happiness by purchasing pleasure, as it were, at the lowest cost of pain.
At the very core of neoclassical economics there is a moral judgment about humans and their behavior. Mainstream economics retains that core, and adds a number of other moral judgments. We are selfish utility maximizing creatures, we are purely rational creatures, able to make complex calculations about our utility on the fly. We are rewarded by the market for our skills, so that failure is our own fault, and success is due to our excellence. Economists use terms like moral hazard, and those preaching austerity claim that recessions and depressions are the result of our moral failures and we must be punished for those failures. Citizens acting through government neither can nor should do anything to make things better. Only the free market can save us.
A sensible leftist economic theory would not be grounded in an archaic philosophical theory about the nature of humanity or the nature of individual humans. It should to the maximum extent possible be non-judgmental about humans, and it should be as impervious as possible to the addition of moral overtones. We should look for a descriptive theory based on close observation of the way things work. Modern Money Theory is certainly a model for this kind of theory. Here’s how L. Randall Wray describes it in Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, §7.10:
On one level, the MMT approach is descriptive: it explains how a sovereign currency works. When we talk about government spending by keystrokes and argue that the issuer of a sovereign currency cannot run out of them, that is descriptive. When we say that sovereign governments do not borrow their own currency, that is descriptive. Our classification of bond sales as part of monetary policy, to help the central bank hit its interest rate target, is also descriptive. And finally, when we argue that a floating exchange rate provides the most domestic policy space, that is also descriptive.
Functional finance then provides a framework for prescriptive policy.
Any respectable economic theory should lend itself to either side as a plausible framework for solving society’s problems. Here’s what Wray says about that:
However, I also believe that most of the tenets of MMT can be adopted by anyone. It does not bother me if some simply want to use the descriptive part of MMT without agreeing with the policy prescriptions. The description provides a framework for policymaking. But there is room for disagreement over what government should do. Once we understand that affordability is not an issue for a sovereign currency-issuing government, then questions about what government should do become paramount. And we can disagree on those. (Emphasis in original.)
It’s easy to identify a left program for the economy. We simply pick up where Franklin Delano Roosevelt left us, with his Second Bill of Rights. This is from his State of the Union Address, January 11, 1944.
We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.
If it was good enough for FDR, and an inspiration for Bernie Sanders, it’s good enough for me.
It’s time to start thinking about an overarching program for the left, one that enables us to respond to the lives people are living right now. The economy is just one of the issues important to the left, but it sets the framework of permitted solutions to the many other problems we have. In future posts, I plan to take up these issues in more detail.
In this post, I talked about the intersection of neoliberalism and neoclassical economics. There is a lot of talk on the left about neoliberalism, and a number of ideas about what it is. For me, neoliberalism refers to the general program of a group of economists, lawyers and othes loosely grouped around the Mont Pelerin Society. This description is used by Philip Mirowski in his book, Never Let a Serious Crisis go to Waste. Mirowski did a Book Salon at FDL, here; the introduction gives a good overview of the book, and Mirowski answers a number of interesting questions.
The writer Gaius Publius provides an historical perspective here. Classical liberalism is based on the idea that property rights are central to the freedom of the individual, an idea espoused by John Locke, as the Theologian Elizabeth Bruenig explains here.
John Locke’s 1689 discussion of property in his Second Treatise on Civil Government establishes ownership as a fundamental relationship between the self and the outside world, with important implications for governance. In Locke’s thought, the justification for private property hinges upon one’s self-ownership, which is then applied to other objects. “Every man,” Locke writes in the Second Treatise, “has a property in his own person: this no body has any right to but himself.” Through labor, Locke continues, the individual mixes a piece of herself with the outside world. Primordial self-ownership commingles with material objects to transform them into property.
In this view, property is the central element that structures individual lives and then society as a whole. Those who have it are entitled to total control over it, just as they are over their own person. Perhaps they should even be in charge of operating the state. When you think about that era, you can see why that formulation would be popular: it solved the problem facing newly rich merchants and others under a monarchy. They were in constant danger that royalty would seize their property from them without fair compensation. Locke’s argument provides a framework to limit the power of the monarch. It also explains the relation between slaves and owners, and women and men. And, as Bruenig points out, it can be extended to justify protection of property with the same force allowed in self-protection.
The defense of property from interference by the State leads directly to the idea of small government. Government shouldn’t interfere with markets any more than it should interfere with any other use of property. The combination of these ideas leads to the principles of classical liberalism: nearly absolute personal freedom for those with property, and a tightly limited sphere of government action. This is the classical formulation of liberalism.
It lasted until the Great Depression and the New Deal. Franklin Roosevelt was faced with the rich on one side, and with angry and miserable workers on the other. These workers and unemployed people, and most of the citizenry were looking at the massive damage done by capitalists and their capitalist system, and saw that the system did not work for them. They were listening to the leftists of the day, socialists and communists; independent smart people like Francis Townsend; and powerful speakers and populists like Huey Long and Father Coughlin. The elites were frightened of the power of these people to inform and structure the rage of the average citizen, and FDR was able to force them to capitulate to modest regulation of the rich and powerful and their corporations, including highly progressive tax rates.
FDR and the Democrats embraced the term liberalism, and the meaning of the term changed to include a more active state, to some extent guided by Keynesian economic theory. In this version of liberalism, the government becomes a tool used by a society to achieve the goals of that society. People who stuck with the old definition of small government coupled with massive force in the protection of property and rejected all Keynesian ideas were labeled conservatives.
The reformulation of the definition of liberal did not sit well with a segment of the conservatives. Friedrich Hayek and his rich supporters launched the Mont Pelerin Society in 1947. The point of the MPS is to preserve and extend classical liberalism, in an effort to prevent FDR-style liberalism from turning the US and other countries to socialism or something even worse. It is a diffuse group, not secretive, but it doesn’t seek publicity. It seems to content itself with publishing papers and having meetings at which like-minded people can talk to each other and feel good about their brilliance.
But with the onset of Progressivism and the New Deal, many Americans became attracted to a political philosophy that was diametrically opposed to Jefferson’s. The new statist philosophy had great faith in public man, but was deeply distrustful of private man. It maintained, quite incorrectly, that the uncoordinated activities of ordinary individuals were bound to culminate in economic catastrophes like the Great Depression, and it looked to an all-good, all-wise and increasingly all-powerful central government to set things right. In the view of these statists — who brazenly hijacked the term “liberal” to describe their very illiberal philosophy — what we Americans needed was more government, not less.
The FDR socialists and communists brazenly hijacked the term “liberal” to cover their assault on the principles of small state property protection. That gives you some idea of the ressentiment of the neoliberals. They have a strong sense of entitlement, and they cling to grudges for decades. Hayek was perhaps most famous for his book The Road to Serfdom, written in the wake of World War II, a screed warning against socialism. That wasn’t going to happen, but it fit neatly with the ressentiment of the filthy rich capitalists who never forgave the Class Traitor FDR.
The Statement of Aims of the MPS is here. It describes a limited choice: Communism or Free Market Capitalism This stark choice has
… been fostered by the growth of a view of history which denies all absolute moral standards and by the growth of theories which question the desirability of the rule of law. It holds further that they have been fostered by a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved.
This statement shows why the filthy rich love neoliberalism: it feeds there sense of self-glorification. That it lends itself to exploitation for their cash benefit is a lovely side benefit.