In the late 18th century the Scottish economist and philosopher Adam Smith described a new form of social order spreading across Great Britain. He called it commercial society and declared it superior to the pastoral and agricultural economies of the past. Those old systems were ruled by landed aristocrats and priests; this new system was ruled by the market. Once a square in the centre of town where people haggled for goods, markets were expanding to encompass the entire public sphere. Instead of being born or raised into fixed social roles, people would function as merchants, buying and selling goods and labour, rising or falling in status according to their economic fortunes.
Smith predicted that this novel social order would be an engine of innovation and opulence, liberating people from the tyranny of poverty, and he has been proved right beyond his wildest dreams. Commercial society – renamed capitalism during the 19th century – has transformed the world. The global middle-classes of the 21st century – some 3.5 billion people – lead longer, healthier and more luxurious lives than the kings and emperors of the feudal era.
And yet, ever since the emergence of capitalism, its many critics – religious, secular, intellectual, revolutionary, liberal, socialist, radical and conservative – have denounced it as evil. New Yorker journalist John Cassidy has compiled them into a grand ensemble of anti-capitalist thought. By arranging them in chronological order, he’s created a fascinating history of free-market economics as seen by its most astute and prescient foes.
There’s a familiar trajectory to Cassidy’s story: from Smith to the industrial revolution to the imperialism and laissez-faire capitalism of the 19th century. The key players of Marx and Engels, Lenin, the Great Depression, John Maynard Keynes, the rise and fall of social democracy and the triumph of neoliberalism. He complicates it with a diversity of voices: Anna Wheeler, an early feminist theorist, JC Kumarappa, who translated Gandhi’s politics into an economic framework, the Luddities and their contemporary heirs the degrowthers. Marilyn Waring is here with her critique of mainstream economics and its indifference to unpaid care and household work. Many of the crises facing advanced capitalism manifest as the incompatibility of our economic system with care work: low birth rates, family fragmentation, rising psychological distress and high health costs. She’s probably our most influential thinker.
Cassidy’s perspective is centre-left. He presents most of his subjects sympathetically, making a plausible case for their ideas, but the hero of his story is Keynes. When The General Theory of Employment, Interest and Money was published in 1936, it founded modern macroeconomics and swept both the classical free-market framework and the world historical theories of Marxist-Leninism into the dustbin of history. His model of managed capitalism combined the dynamism of markets with the planning and redistribution of the socialist state. This seemed like the perfect middle ground between two flawed extremes. For nearly three decades it delivered rapid economic growth, rising living standards for the majority, and declining levels of income inequality. Much of the second half of Cassidy’s book reckons with its failure, and the intellectual and political triumph of the neoliberals.
Two of Cassidy’s subjects are important in the modern New Zealand economy, and a third illuminates the global decline of liberal democracy in the 21st century. Joan Robinson was Keynes’s most brilliant protégé. She collaborated on the General Theory but argued that it was incomplete. His triad of employment, interest and money is still the prism for most discussions of political economy, but Robinson points to a fourth problem that breaks the other three: market concentration. In a free-market system, companies are strongly incentivised to scale up then use their size to raise barriers to competition, hike prices and force wages down. Unless governments actively prevent this, you’ll get an uncompetitive, high-price, low-wage, low-growth economy, ie, you get the New Zealand economy.
Robinson has been described as “the most famous economist not to be awarded the Nobel prize”, but she appears to have zero impact on left-wing policy development in New Zealand, which focuses on handing out benefits to help people afford the high prices charged by monopolies and cartels instead of dismantling them.
For Friedrich Hayek, the intellectual architect of neoliberalism, there’s a fundamental conflict between democracy and managed capitalism. For Hayek the market isn’t just a place where you buy and sell stuff. It’s a decentralised information processing system, coordinating the vast knowledge of individuals across society then allocating resources based on that information, communicated via prices. It’s not the only way to run things – socialists and fascists use centralised bureaucracies and/or military hierarchies – but as your economy scales up in size and complexity and integrates into global markets, these solutions fall apart. There’s too much information for central planners to process.
If you concede that politicians have to interfere in the economy, for whatever reason – growth, egalitarianism, competition – you’re in trouble. Because while politicians will devoutly promise they’re delivering economic development, social justice or competitive markets, they will inevitably use the enormous power of the state to buy votes and win elections. They rig laws in favour of their donors and cronies, squander money on corporate and middle-class welfare and pork-barrel projects. They’ll delegate their authority to bureaucracies that will crush private enterprise under a blanket of permits and directives to justify their own existence. With each election and each budget, more and more of the nation’s wealth will be transferred out of the productive economy and redirected to serve political and bureaucratic ends.
As they break the economy, politicians will solemnly promise to fix it by exerting even more control, breaking it further. Hayek is allegedly the most influential right-wing economist of the last 100 years, but New Zealand’s right-wing political parties often seem more invested in bringing his bleakest prophecies to pass than heeding his warnings.
Keynes and Robinson argue capitalism works only if it’s actively managed. Hayek replies that if you allow politicians the scope to manage capitalism they’ll break it. The Austro-Hungarian sociologist Karl Polanyi points out humans simply will not live in a society ruled by the deregulated free markets that Hayek advocates. Pure market outcomes are too amoral, too chaotic, too destructive. Because of this, capitalism always provokes a “double movement”: the market attempts to rebuild society; society always pushes back. In a democratic system people vote for change. In an authoritarian system they revolt. They will gravitate towards a socialist or fascist form of government to offset deficiencies of unbridled capitalism.
Polanyi is the most challenging thinker for contemporary centrists and other elite factions, who regard public sympathy for socialism or authoritarianism as a moral failing among the lower orders. Surely those millennial socialists and Trump voters have been tricked by disinformation, given into racism or brainwashed by university professors. For Polanyi, the fascist or socialist turn is the inevitable outcome of the failure of policymakers to make capitalism compatible with basic human needs.
At the end of Cassidy’s book we’re left with the bleak conclusion that all of these thinkers are probably correct. Capitalism works only if you manage it; but if you try to manage it you’ll probably break it, and even if you don’t the public will demand a more just society than unmanaged capitalism can hope to deliver.
Capitalism and Its Critics: A Battle of Ideas in the Modern World, by John Cassidy (Allen Lane, $100 hb, ebook, audio), is out now.
