Tuesday, August 21, 2018

Revisiting Marx and Smith

Frank Partnoy and Rupert Younger revisit The Communist Manifesto and draft The Activist Manifesto in the context of today's problems, and finds that they ended up retaining almost three-quarters of the former's prose!  They write,
In our redrafting, we have had to go far beyond merely substituting “communism” with “activism”. The “Pope and Tsar, Metternich and Guizot, French Radicals and German police-spies” and others in Marx’s and Engels’ sights have gone. We have introduced their modern counterparts: “the corporate Haves, the elites, the billionaires, the establishment politicians of the Republican and Democratic parties, Conservatives and Labour, the talking heads at Davos, the echo chambers of online media and fake news.” But we have kept much of the rhetoric along with Marx’s and Engels’ relentless focus on economic inequality. Two centuries after Marx’s birth, and however much communism has rightly been discredited, a great deal of the argument is as relevant now as it was then... We substituted “Have-Not” in place of “proletariat”... we substituted “Have” in place of “bourgeois”... the document was, fundamentally, an attack on inequality... The Haves have never in history held so much advantage over the Have-Nots.
And Paul Sagar's revisit of Adam Smith,
According to Smith, the most pressing dangers came not from the state acting alone, but the state when captured by merchant elites... Indeed, Smith’s single most famous idea – that of ‘the invisible hand’ as a metaphor for uncoordinated market allocation – was invoked in precisely the context of his blistering attack on the merchant elites... in the passage of The Wealth of Nations where he invoked the idea of the invisible hand, the immediate context was not simply that of state intervention in general, but of state intervention undertaken at the behest of merchant elites who were furthering their own interests at the expense of the public.
It is an irony of history that Smith’s most famous idea is now usually invoked as a defence of unregulated markets in the face of state interference, so as to protect the interests of private capitalists. For this is roughly the opposite of Smith’s original intention, which was to advocate for restrictions on what groups of merchants could do. When he argued that markets worked remarkably efficiently – because, although each individual ‘intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention’ – this was an appeal to free individuals from the constraints imposed upon them by the monopolies that the merchants had established, and were using state power to uphold. The invisible hand was originally invoked not to draw attention to the problem of state intervention, but of state capture... Smith’s analysis implies that a free society with a healthy economy is going to need to put fetters on economic elites if the invisible hand is to have any chance of doing its paradoxical work. 
Contrary to the conventional wisdom, at least in the context of the issue of widening inequality and political capture, the similarity in the contextualised messages of both is remarkable.

Update 1 (26.08.2018)
Jesse Norman has an excellent interpretation of Smith for modern times in the FT. His nuanced suggestions are spot on,
Markets for Smith are very different to those of economists today. They are not the disembodied mathematical constructs of modern economics and policymaking, and his view of individuals is not that of a desiccated economic atomism. Rather — recalling his insights about language and ethics — markets are living institutions embedded in specific cultures and mediated by social norms and trust. They shape and are shaped by their participants, in a dynamic and evolving way. They often have common features, but they are as different from one another as individual humans are: markets for land and labour and capital, asset markets from product markets and all the innumerable rest of them... what matters is not the largely empty rhetoric of “free markets”, but the reality of effective competition. And effective competition requires mechanisms that force companies to internalise their own costs and not push them on to others, that bear down on crony capitalism, rent extraction, “insider” vs “outsider” asymmetries of information and power, and political lobbying... markets constitute a socially constructed and evolving order that exists and must exist not by divine right but because it serves the public good. It follows from this that the modern doctrine of market failure, which derives from academic models assuming perfect competition, needs to be expanded and supplemented. The truth is that outside academic models there are few if any genuinely free markets, and the imagined benefits of perfect markets disappear once any imperfections are allowed. Instead, policymakers need to start by asking two much simpler questions: What is this specific market for? How is it actually working?... both individual markets and the market order itself rely on the state. While political intervention can destroy market functioning, it can also enable it. But markets are not inviolable, and they derive their reason for being not from any supposed sanctity of capitalism itself, but from their place within modern commercial society. Ultimately, especially within democracies, it falls to the state to underwrite that legitimacy. And if the preservation of the freedoms, trust and order that make up modern commercial society requires the periodic reform of capitalism, then reform it we must.

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