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The spectre of Marx haunts the debate

Contributors to the debate about capitalism increasingly find themselves obliged to consult Marx, the primary authority on the system, and to try and refute his arguments for its replacement.

The deepening global economic crisis is driving the discussion. Every attempt to resolve it just makes matters worse. Every new set of figures negates the idea that the problems are temporary.

As the Telegraph’s Jeremy Warner has it today: “Normally, the economy will bounce back quite quickly from a cyclical contraction, fast rendering the anti-capitalist backlash redundant. But this time, there is no such recovery.”

He points out that more than three years since the recession started, Britain’s economic output is still below the level it reached in 2007. Prospects for growth do not appear on the radar.

Meanwhile, a redistribution of wealth is going on apace – from the poor to the rich. “There is no hardship for those seen to have caused the slump. Bankers and company bosses are paying themselves even more than they were during the boom; the wealth divide continues to widen.”

Warner, assistant editor and leading business commentator, uses his article to bash Ed Miliband (bit of an easy target) for failing to come to terms with changed conditions and declining to accept New Labour’s role in the build-up of debt that has overwhelmed the economy.

But he has to admit: “Rightly or wrongly, capitalism is seen to have failed. To counter rising forms of populism, it must find ways of recreating and reinvigorating itself.” Unfortunately for Warner, the patient’s vital life signs are heading in the opposite direction.

Enter Emanuel Derman, a former managing director at Goldman Sachs, and one of the leading proponents of the financial engineering that propelled the credit boom to its catastrophic collapse. He opens his new book (Models Behaving Badly: Why Confusing illusion with reality can lead to disaster, on Wall Street and in Life) with a famous quote from Marx and Engels his co-thinker and factory owner:

All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face, with sober senses, his real conditions of life, and his relations with his kind.

Ultimately, however, like many other commentators, he thinks there is life in the old dog of capitalism yet if only the financial system abandoned its reliance on mathematical models. Ah, if the answer were so simple!

To his credit, Derman acknowledges the relevance of Marx while author and academic John Kay, visiting professor at the London School of Economics, tells the readers of the Financial Times that capitalism actually no longer exists (which is news to those under its heel). “The political and economic environment in which Marx wrote was a brief interlude in economic history.”

Kay argues that the nature of share ownership is so diffuse compared with the individual capitalist of 19th century England that “people do not know who owns their work tools because the answer does not matter” while “control over the means of production and exchange matters a great deal to the organisation of business and the power structures of society”. Kay suggests that we abandon the term capitalism and refer to the “market economy” instead.

But far from being a refutation, Kay’s analysis reinforces the method that Marx and Engels developed and used in their work, which revealed not just the inner, contradictory logic that drives the system to its alternating periods of credit-enhanced growth and catastrophic collapse, but the necessity of its continually changing its form.

Most importantly of all, Marx and Engels’ dialectical method showed the temporary, historical nature of the system and how it created the conditions for the socialisation of production. With due respect to Warner, capitalism has not just been “seen to have failed”. It has failed in practice and it urgently needs replacing.

Gerry Gold
Economics editor
11 January 2012

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