Financial Times’ Four Primers on Capital

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Economic Diagnosis: Smith, Marx, Schumpeter, and Keynes

I’ve been wanting to draw attention to Paul Kennedy’s article, “Read the big four to know capital’s fate,” from the Financial Times but it slipped my mind until now.  And who are the big four Kennedy suggests who’s economic insight will shed light on capital’s latest crash and burn?  Why it’s Adam Smith, Karl Marx, Joesph Schumpeter, and John Maynard Keynes.  Kennedy explains:

Perhaps the supremely gifted playwright Tom Stoppard could put those four savants on stage and offer an imaginary weekend-long quadrilateral discourse among them about the future of capitalism. Failing such a creative work, what might we imagine the four great political economists would say about our present economic crisis?

Smith, one imagines, would claim that he had never advocated total laissez faire, was appalled at how sub-prime loans to fiscally insecure people contradicted his devotion to moral economy, and was concerned at the deficit spending proposed by many governments. Marx would still be badly bruised by learning of Lenin and Stalin’s perversion of his communistic theories, and by the post-1989 withering-away of most of the world’s socialist economies; yet he might still feel pleasure at modern financial capitalism foundering on its contradictions. The austere Schumpeter, by contrast, might be lecturing us to swallow another decade of serious depression before a newer, leaner form of capitalism emerged again, though with lots of evidence of severe gale-damage (the end of the US car industry, the decline of the City of London, perhaps) in its wake.

And Keynes? My own guess is that he would not be very happy at today’s state of affairs. He might (only might) regard it as fine that he was quoted or misquoted millions of times in today’s media, but one suspects that he would be uneasy at parts of Mr Obama’s deficit-spending scheme: at the US Treasury’s proposal to allocate more money to buying bad debts and rescuing bad banks than investing in job creation; at a Washington spending spree that seems uncoordinated with those of Britain, Japan, China and the rest; and, most unsettling of all, at the fact that no one is asking who will purchase the $1,750bn of US Treasuries to be offered to the market this year – will it be the east Asian quartet, China, Japan, Taiwan and South Korea (all with their own catastrophic collapses in production), the uneasy Arab states (yes, but to perhaps one-tenth of what is needed), or the near-bankrupt European and South American states? Good luck! If that colossal amount of paper is bought this year, who will have ready funds to purchase the Treasury flotations of 2010, then 2011, as the US plunges into levels of indebtedness that could make Philip II of Spain’s record seem austere by comparison?

In the larger sense, of course, all four of our philosophers would be correct. Capitalism – our ability to buy and sell, move money around as we wish, and to turn a profit by doing so – is in deep trouble. No doubt Smith, as he watches the collapse of Iceland and the Irish travails, is reconsidering his aphorism that little else is needed to create a prosperous state than “peace, easy taxes and tolerable administration of justice” – that did not work this time. By contrast, rumbles of satisfaction might be heard coming from Marx’s grave in Highgate cemetery, causing excitement for the still-considerable numbers of Chinese visitors. Meanwhile, Schumpeter will have due cause to mutter: “This is not a surprise, really.” As for Keynes, we might imagine him sipping tea with Wittgenstein at Grantchester meadows, pursing his lips at the incapacity of merely normal human beings to get things right: at our tendency to excessive optimism, our blindness to the signs of economic over-heating, our proneness to panic – and our need, every so often, to turn to clever men like himself to put the shattered Humpty-Dumpty of international capitalism back together again.

Image: The Financial Times.