Skidelsky is 85 but is
extraordinarily prolific – he has just produced What’s wrong with
economics – a primer for the perplexed 2020) and was an active
member last year of a small advisory group to the OECD Sec-Gen which helped
produce an amazing little document Beyond
Growth – towards a new economic approach; (OECD Sept 2019) which basically
questions the entire raison d’etre of the OECD for most of its existence!
What it reveals is 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?
This is an argument that
has been going on in some form for thousands of years.
Technically, this comes
down to a choice between what are called exogenous and endogenous theories of
money. Should money be treated as an outside factor, like all those Spanish
dubloons supposedly sweeping into Antwerp, Dublin, and Genoa in the days of
Philip II, or should it be imagined primarily as a product of economic activity
itself, mined, minted, and put into circulation, or more often, created as credit
instruments such as loans, in order to meet a demand—which would, of course,
mean that the roots of inflation lie elsewhere?
To put it
bluntly: QTM is obviously wrong. Doubling the amount of gold in a
country will have no effect on the price of cheese if you give all the gold to
rich people and they just bury it in their yards, or use it to make gold-plated
submarines (this is, incidentally, why quantitative easing, the strategy of
buying long-term government bonds to put money into circulation, did not work
either). What actually matters is spending.
Nonetheless, from Bodin’s
time to the present, almost every time there was a major policy debate,
the QTM advocates won. In England, the pattern was set in 1696, just
after the creation of the Bank of England, with an argument over wartime
inflation between Treasury Secretary William Lowndes, Sir Isaac Newton (then
warden of the mint), and the philosopher John Locke.
Newton had agreed with the
Treasury that silver coins had to be officially devalued to prevent a
deflationary collapse; Locke took an extreme monetarist position, arguing that
the government should be limited to guaranteeing the value of property
(including coins) and that tinkering would confuse investors and defraud
creditors. Locke won. The result was deflationary collapse.
According to Skidelsky,
the pattern was to repeat itself again and again, in 1797, the 1840s, the
1890s, and, ultimately, the late 1970s and early 1980s, with Thatcher and
Reagan’s (in each case brief) adoption of monetarism.
Always we see the same
sequence of events:
(1) The government adopts
hard-money policies as a matter of principle.
(2) Disaster ensues.
(3) The government quietly
abandons hard-money policies.
(4) The economy recovers.
(5) Hard-money philosophy
nonetheless becomes, or is reinforced as, simple universal common sense.
How was it possible to
justify such a remarkable string of failures? Here a lot of the blame,
according to Skidelsky, can be laid at the feet of the Scottish philosopher
David Hume.
The one major exception to
this pattern was the mid-twentieth century, what has come to be remembered as
the Keynesian age. It was a period in which those running capitalist
democracies, spooked by the Russian Revolution and the prospect of the mass
rebellion of their own working classes, allowed unprecedented levels of
redistribution—which, in turn, led to the most generalized material prosperity
in human history. The story of the Keynesian revolution of the 1930s, and the
neoclassical counterrevolution of the 1970s, has been told innumerable times,
but Skidelsky gives the reader a fresh sense of the underlying conflict……
Economic theory as it
exists increasingly resembles a shed full of broken tools. This is not to say
there are no useful insights here, but fundamentally 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. This demands a different science. The “microfoundations” of current
economics are precisely what is standing in the way of this.
Any new, viable science
will either have to draw on the accumulated knowledge of feminism, behavioral
economics, psychology, and even anthropology to come up with theories based on
how people actually behave, or once again embrace the notion of emergent levels
of complexity—or, most likely, both.
Intellectually, this won’t
be easy. Politically, it will be even more difficult. Breaking through
neoclassical economics’ lock on major institutions, and its near-theological
hold over the media—not to mention all the subtle ways it has come to define
our conceptions of human motivations and the horizons of human possibility—is a
daunting prospect. Presumably, some kind of shock would be required. What might
it take? Another 2008-style collapse? Some radical political shift in a major
world government? A global youth rebellion? However it will come about, books
like this—and quite possibly this book—will play a crucial part.
