Radical imagination and the intellectual edifice — Jim Vrettos interviews Michael Hudson

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
Radical imagination and the intellectual edifice
Jim Vrettos interviews Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited — Yair Kaldor

Value theory in economics.

Economic Sociology and Political Economy

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited

Yair Kaldor | PhD candidate in the sociology department at the University of Wisconsin-Madison, and a member of Koah LaOvdim (“Power to the Workers”), an Israeli labor union.

Peter Taaff — Parasitic capitalism exposed [Book Review]

Mariana Mazzucato’s new book is a detailed exposé of the parasitic character of modern capitalism, drawing on Karl Marx’s theory of the source of value creation. But understanding the law of value is only a first step to providing an alternative to a system that cannot overcome its inevitable tendency for periodic crises and which needs to be overthrown, argues Peter Taaffe.

Socialism Today
Parasitic capitalism exposed

Peter Taaff | general secretary of the Socialist Party of England and Wales and member of the International Executive Committee of the Committee for a Workers' International

Paul Craig Roberts — For Economic Truth Turn To Michael Hudson

The reeducation of a Reaganomics supply-sider.

It's the rent, stupid.

Michael Hudson
For Economic Truth Turn To Michael Hudson
Paul Craig Roberts

Michael Hudson — “Creating Wealth” through Debt: The West’s Finance-Capitalist Road

I kid to this previously, but it was in a list of links. It is important enough to give it its own post.

Hudson at his best. It's a must-read. Longish, so save it for the weekend if time is an issue.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
“Creating Wealth” through Debt: The West’s Finance-Capitalist Road— To be delivered at the Peking University, School of Marxist Studies, May 5-6, 2018

Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Nature — How to retool our concept of value – Mariana Mazzucato

Must-read in full. It's short and to the point.

The meaning of "value" is one of the most pertinent questions in economics and political economy. Michael Hudson has been emphasizing this for some time, as have Marxists and Marxian. Consideration of value of other than as price revealed in competitive markets is ruled out in conventional economics by methodological assumptions.

What we value and how we value it is one of the most contested, misunderstood and important ideas in economics. Economist Mariana Mazzucato’s comprehensive The Value of Everything explores how ideas about what value is, where it comes from and how it should be distributed have changed in the past 400 years, and why value matters now more than ever. Mazzucato emphasizes the need to reopen debate to make economies more productive, equitable and sustainable. The 2008 financial crisis was just a taste of looming problems — climate disruption, massive biodiversity and ecosystem-services decline, even the possible collapse of Western civilization — unless we learn to value what really matters.

Early economists focused on the production of value from land (François Quesnay and the ‘physiocrats’), labour (Adam Smith to Karl Marx) and capital. In this view, value determines price (Four decades ago, I described this in terms of embodied energy: see R. Costanza Science 210, 1219–1224; 1980). By contrast, the current mainstream ‘marginalist’ concept bases value on market exchanges: price, as revealed by the interaction of supply and demand in markets, determines value, and the only things that have value are those that fetch a price.

This has major implications for ideas about the distinction between value creation and value extraction, the nature of unearned income (‘rent’) and how value should be distributed....

Nature
How to retool our concept of value — Mariana Mazzucato
Robert Costanza

Robert Vienneau — Marx Versus Classical Economics — and more

Robert Vienneau approaches thinking about Marx in relation to previous economists from the perspective of the different distinctions that Marx drew. This is entirely consistent with Marx's training in philosophy, since a cardinal principle of philosophical method is overcoming apparent difficulties in expression by drawing distinctions. This involves changing the grain of the model. A grainy model has the advantage of simplicity but risks the disadvantage of being too simplistic an account.

Importantly, Vienneau notices the purpose for which classical economics was constructed.

The spokesmen for the emerging and progressive capitalist class sought for a theory justifying their opposition to aristocrats and the and the ancien régime. And classical economics was that theory.

The result was what Marx viewed as "bourgeois liberalism," in which capitalists replaced the landed gentry as the beneficiaries of economic rent.

Some argue that neoclassical economics played a similar part as classical economics aimed at the ancien régime in being aimed at rising socialism, e.g., Marx and Engels, and Henry George.

Thoughts On Economics
Marx Versus Classical Economics
Robert Vienneau

See also

Short review of Tim Rogen's The Moral Economists.

The Enlightened Economist
Morals and economics
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporationlso

See also

Marginal Revolution
*Enlightenment Now*, the new Steven Pinker book
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center
also

Real-World Economics Review Blog
Polanyi’s six points

Zaman Assad

also

J. W. Mason's
The Class Struggle on Wall Street: A Footnote
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Brad DeLong — John Maynard Keynes: Essays In Biography

Brad rates this as a should-read. For anyone interested in Keynesianism, Post Keynesianism and MMT, the history of economics, or economic theory, it is a must-read.

Conventional economists have apparently concluded that they don't need to read it if they even thought about, which most probably haven't, being under the spell of the "normal paradigm" in spite of its poor results empirically.

Washington Center for Equitable Growth
John Maynard Keynes: Essays In Biography

Brad DeLong

Here is a link to download Keynes's Essays in Biography (1933) as a PDF.

Another must-read from Brad.

 I think the very smart Jeffrey Friedman gets this… not quite right. The case for the empirical benefits of capitalism is very strong—but only if one is willing to remove libertarian blinders and focus on eliminating the market failures (in distributions, in aggregate demand, in externalities, in information, etc.) that keep the function the market maximizes from being a good proxy for societal well-being. And once one has the market properly supported and disciplined, the philosophical discussion can commence: Jeffrey Friedman: What’s Wrong with Libertarianism: “Libertarian arguments about the empirical benefits of capitalism are, as yet, inadequate…

From the Marxian and Institutionalist points of view,  economic liberalism, of which contemporary Libertarianism is a variant, provides the philosophical framework for bourgeois capitalism. Its fundamental weakness is prioritizing economic liberalism over social and political liberalism, which gives rise to many paradoxes of liberalism that result in illiberality such as have been pointed out many time here at MNE.

Brad also provides another keeper Keynes quote.

Here is an excerpt:

But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.

Individualism as the pursuit of self-interest does not lead to the greatest good for the greatest number the spontaneous emergence of natural order, unless "natural order" is conceived as the outcome of social Darwinism. This result is so grossly unfair that overtime it becomes unstable politically.

Keynes is saying here that individualism only works as a guiding principle of liberalism if collective consciousness is sufficiently high, which is manifested in a society's culture and institutions. The fact that civil and criminal law are needed goes to show that collective consciousness alone is not that high presently. In addition, the level of social and political dysfunctionality in liberal countries shows that the culture and institutions of the society are insufficient to bridle narrow self-interest to the degree necessary to generate a harmonious society and balanced social, political and economic conditions.

This is a design problem.

Jeffrey Friedman: What’s Wrong with Libertarianism

More from BDL:

Three Books for 2017: Economics for the Common Good, Janesville, Economism

Weekend Reading: Richard Thaler: Behavioral Economics

Brad DeLong — Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong shows how Ricardo's version of economic liberalism based on free trade explained by comparative advantage is bourgeois liberalism that enriches the ownership class.

Washington Center for Equitable Growth

Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong | Professor of Economics at the University of California, Berkeley

Putting an End to the Rent Economy — Vlado Plaga interviews Michael Hudson

Interview with Vlado Plaga in the German magazine FAIRCONOMY, September 2017.

VP: You are advocating a revival of classical economics. What did the classical economists understand by a free economy?

MH: They all defined a free economy as one that is free from land rent, free from unearned income. Many also said that a free economy had to be free from private banking. They advocated full taxation of economic rent. Today’s idea of free market economics is the diametric opposite. In an Orwellian doublethink language, a free market now means an economy free for rent extractors, free for predators to make money, and essentially free for financial and corporate crime.

Good one.

Counterpunch
Putting an End to the Rent Economy

Vlado Plaga interviews Michael Hudson, President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Gavin Kennedy — More Evidence Of The Tide Turning?

Oscar Valdes Viera posts (1 July) a most interesting Working Paper ( NO. 893) HERE
[Levy Institute] Working Paper No. 893

 The Neoclassicals’ Conundrum: If Adam Smith is the Father of Economics, It Is a Bastard Child

ABSTRACT 

Neoclassical economists of the current era frequently pay lip service to Adam Smith’s theories to certify the validity of natural-laws-based, laissez-faire policies. However, neoclassical theories are fundamentally disconnected from Adam Smith’s notion of value, his understanding of the economic individual and their interactions in society, his methodology, and the field of study he afforded to political economy. Instead, early neoclassical economists parted ways with the theories of Adam Smith in an effort to construct economic laws that would validate the existing capitalist order as universal, natural, and harmonious.

 Adam Smith specialist Gavin Kennedy comments:

This by far is the most focussed contribution to the missing debate over where and why did economic theory and science go astray from the 19th century though to the 21st century.

I recommend readers to take the trouble to follow the links and read the whole paper and make their own minds up about the degree of the validity of the Author's arguments.

Adam Smith's Lost Legacy

More Evidence Of The Tide Turning?

Gavin Kennedy | Professor Emeritus, Heriot Watt University

The tide is turning indeed, and Levy Institute is leading the way!

Ingrid Harvold Kvangraven — 200 Years of Ricardian Trade Theory: How Is This Still A Thing?

On Saturday, April 19th 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out the theory of comparative advantage, which since has become the foundation of neoclassical, ‘mainstream’ international trade theory. 200 years – and lots of theoretical and empirical criticism later – it’s appropriate to ask, how is this still a thing?

This week we saw lots of praise of Ricardo, by the likes of The Economist, CNN, Forbes and Vox. Mainstream economists today tend to see the rejections of free trade implicit in Trump and Brexit as populist nonsense by people who don’t understand the complicated theory of comparative advantage (“Ricardo’s Difficult Idea”, as Paul Krugman once called it in his explanation of why non-economists seem to not understand comparative advantage). However, there are fundamental problems with the assumptions embedded in Ricardo’s theory and there’s little evidence, if any, to back up the Ricardian claim that free trade leads to benefits for all. On this bicentenary, I therefore think it’s timely to revisit some of the fundamental assumptions behind Ricardo’s theory of comparative advantage, that should have led us to consider alternative trade theories a long time ago....

Good summary backgrounder. "It's more complicated than that," the "that" being what is assumed.

The following quote contains an important lesson about logic and epistemology.

Rather than accept that there is something wrong with the exchange rate theory itself, empirical discrepancies are explained by measurement problems and/or imperfections in the market because of currency ‘manipulation’ (see for example Eichengreen 2013 or Gagnon 2012). In fact, neoclassical trade theory is so highly regarded that economists, almost across the board, cannot imagine any reason for China’s trade surplus with the US other than the Chinese manipulating their exchange rate in order to stimulate their exports.

What has happened here is that the theoretical model become the criterion for assessing truth rather than a model to be compared with observation in measurement.

Take probability theory. Probability theory shows the outcome of a long run roll of a coin toss, regardless of whether it is an ensemble of 1000 coins tossed at once or a single coin tossed a 1000 times. If the outcome does not converge on 0.50, then the fairness of the coin becomes suspect and not the theory.

This is not necessarily the case with a scientific theory. In the case of an anomaly scientists check the experiment but after checking and finding no errors, the theory becomes suspect. Repeated failures result in re-thinking the theory.

Because it is difficult to impossible to run controlled experiments in economics in many cases, trade being one of them, the dominant theory is never questioned. It serves as a criterion of truth whose truth is privileged from question.

Developing Economics

200 Years of Ricardian Trade Theory: How Is This Still A Thing?
Ingrid Harvold Kvangraven | PhD student in Economics at the New School for Social Research

Robert Paul Wolff — The Connection Between Expropriation and Exploitation, Part One

In this lengthy essay, I will explain the relationship between the claim that capitalism arises through the expropriation of workers, and the claim, specific to Marx’s economic theory, that capitalism rests on the exploitation of the working class. The term “exploitation” in Marx’s writings has a specific technical meaning which I shall explain in good time, but we should start by recalling that “to exploit” has two distinct and yet related uses in common speech. To exploit something means to use it for some purpose. “In his architectural designs, Frank Lloyd Wright exploited the particular physical and scenic characteristics of the site on which a building was to be constructed.” To exploit someone means to take advantage of that person for one’s own purposes. “Trump exploits contractors whom he hires on his construction projects by using the expense of legal proceedings to get out of paying the bills he has run up with them.” The first usage has no obvious normative implications. No one save a Mother Earth enthusiast would blame Wright for exploiting nature in his designs. The second usage at least prima facie does have normative implications. Marx deliberately plays on this ambiguity in Capital.

The Philosopher's Stone
The Connection Between Expropriation and Exploitation, Part One
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Michael Hudson — Rentier Capitalism – Veblen in the 21st century

As the heirs to classical political economy and the German historical school, theAmerican institutionalists retained rent theory and its corollary idea of unearned income. More than any other institutionalist, Veblen emphasized the dynamics of banks financing real estate speculation and Wall Street maneuvering to organize monopolies and trusts. Yet despite the popularity of his writings with the reading public, his contribution has remained isolated from the academic mainstream, and he did not leave a “school.” The rentier strategy has been to make rent extraction invisible, not the center of attention it occupied in classical political economy. One barely sees today a quantification of the degree to which overhead charges for rent, insurance and interest are rising above the cost of production, even as this prices financialized economies out of world markets.

Michael Hudson
Rentier Capitalism – Veblen in the 21st century

See also


L. Randall Wray, Veblen’s Theory of Business Enterprise and Keynes’s Monetary Theory of Production, <i>Journal of Economic Issues</i>

Days of Revolt: How We Got to Junk Economics — Chris Hedges interviews Michael Hudson

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

CHRIS HEDGES: Hi, I'm Chris Hedges. Welcome to Days of Revolt. Today in a two-part series we're going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there, in the first segment, and secondly, where we're going. And with me to discuss this issue is the economist Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. A professor of economics who worked for many years on Wall Street, where you don’t succeed if you don’t grasp Marx's dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.…

Real News Network
Days of Revolt: How We Got to Junk Economics

Chris Hedges interviews Michael Hudson

Jag Bhalla — Stop Associating Adam Smith with Laissez-Faire Economics

Some keeper Smith quotes.

Evonomics
Stop Associating Adam Smith with Laissez-Faire Economics
Jag Bhalla

David F. Ruccio — Marx’s relevance today

David Ruccio amplifies Chris Dillow's recent post on the continuing relevance of Marx. He also links Marx's to the classical economics of the time that Marx was both extending and correcting.

Nice Adam Smith quote as a bonus, showing how ideas generally associated with Marx were already reflected in Smith.

Occasional Links & Commentary
Marx’s relevance today
David F. Ruccio | Professor of Economics, University of Notre Dame

Eric Michael Johnson — What Philanthropic Organizations Need to Know about Giving – Is philanthropy driven by morality or markets?

The notion that philanthropy resulted from the invention of money is a pillar of classical economics. It is also a myth. After more than two centuries of searching for an indigenous society that approximates Adam Smith’s parable of the original barter system, anthropologists have concluded that it can only be imaginary. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing,” wrote Cambridge anthropologist Caroline Humphrey in a 1985 paper titled “Barter and Economic Disintegration” in the journal Man. Instead, researchers have discovered that philanthropy is far more central to human social organization than economists had ever imagined.

The notion that philanthropy resulted from the invention of money is a pillar of classical economics. It is also a myth.…

This suggests that Adam Smith wasn’t so much chronicling the evolution of modern market economies as he was observing what existed during his time and then projecting it onto the human past.…

Evonomics

What Philanthropic Organizations Need to Know about Giving

Eric Michael Johnson

How To Use Economics & Not Be Used by Economists (1/6) — Lynn Fries interviews Ha-Joon Chang

Tape and transcript. Ha-Joon Chang talks about his new book, Economics: The User's Guide.

In the late 19th century, early 20th century the then-rising school of economics, Neoclassical economics, which is today's dominant school of economics, decided that they want to become scientists. You know, in modern world the title of science has a great aura, because after all, that progress in scientific knowledge is what has built the modern world. So if you can call yourself scientist, you immediately get much greater credibility. And, I mean, that, this is what the Neoclassical economists have aimed to achieve since the late 19th century.

And the most important thing they did at the beginning to achieve this goal was to rename the subject. So it wasn't political economy anymore, because when you say politics, you're already implying that people may disagree, you know. But if you're a, a scientist, you cannot have that kind of disagreement. So it was really important to get rid of that word politics from the name of the subject so that they can now claim that this is free of ethical judgments, this is free of political disagreement, and therefore there is a science like physics or chemistry....

Real News Network
How To Use Economics & Not Be Used by Economists (1/6)

Lynn Fries interviews Ha-Joon Chang, Reader in the Political Economy of Development at the University of Cambridge

Sara Hsu — The Trans-Pacific Partnership and China’s Reality

To sum up, although China’s officials have underscored their openness to the TPP, it is not at the forefront of their agenda, and TPP nations would be naïve to think that China would participate in any pact that would increase its cost of doing business. Whether and when free trade cooperation on both sides of the Pacific will come about is anyone’s guess, but for now, for China, the TPP is a non-starter.

China is pursuing a policy closer to Friedrich List and the National System that the US adopted as the American System rather than than the British System of Adam Smith and David Ricardo. China is following in American footsteps as an emerging nation, and it is not likely to follow America after the US has become an empire itself and adopted the British System.

Will China switch horses after it comes an economic empire?

TripleCrisis
The Trans-Pacific Partnership and China’s Reality
Sara Hsu