Why Write the History of Capitalism? asks Louis Hyman, in view of a once-again flourishing field of history.
Economic theory, for instance, would tell us that depressions are the worst time to strike and organize. Yet the Flint Sit-Down Strike of 1936 took place in the middle of the Great Depression. A group of auto-workers took on and won a strike against General Motors, then the most powerful corporation in the world. That reality, more than any theory, is what makes the history of capitalism different from economic history.
Above all else, historians must remind us all that things change, even capitalism. In some sense, this idea is more radical than any millenarian communist tract. While the basic rules of capitalism might appear fixed (excess profits ought to be invested, work needs to be organized, and private property needs protecting), the forms that are possible are quite endless.
Luckily, archives always offer more instruction in the specificity of the past, even as they push us to question our assumptions about how capitalism works. Choices were and are made every day, if not by everyone, determining not only capitalism’s past but its future as well. The history of capitalism is not a fad, but something that we should think about, so that we can make better choices — when we have them — in the future.
Below the fold: how ratings agencies fucked up and helped cause the financial crash, and why Econ 101 can’t quite explain some of the most important questions in economics.
The Last Mystery of the Financial Crisis by Matt Taibbi offers damning evidence that the ratings agencies responsible for certifying the trustworthiness of investments were just about wholly in the pocket of Wall St. I meant to post this a while back, apologies if you’ve read it by now.
Their primary function is to help define what’s safe to buy, and what isn’t. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It’s supposed to be sacrosanct, inviolable: According to Moody’s own reports, AAA investments “should survive the equivalent of the U.S. Great Depression.”
It’s not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.
And paid for it blatantly was:
In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.
“Lord help our fucking scam . . . this has to be the stupidest place I have worked at,” writes one Standard & Poor’s executive. “As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it,” confesses a high-ranking S&P analyst. “If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value,” complains another senior S&P man. “Let’s hope we are all wealthy and retired by the time this house of card[s] falters,” ruminates one more.
Read the full story here to see just how this was possible
Matt Yglesias writes in response to a critique of Econ 101 that’s been going around. Here, he discusses the concept of comparative advantage. One thing he points out is that perhaps it’s a bit harsh giving David Ricardo too much flack:
The big issue that gets left out in pious lectures about comparative advantage is that Smith and Ricardo didn’t believe that long-term economic growth was possible! This was the era of economics as the “dismal science”, meaning that political economy was essentially the study of how to optimally allocate a fixed pool of resources.
That’s an important bit of the history of economic theory to have. But in the modern context, the criticism of comparative advantage is relevant. Poorer companies might have the comparative advantage in low-wage labor and resource extraction, but that doesn’t mean they’ll want to make that what they specialize in while other countries get to have the well-paid job and pollution-free neighborhoods.
And historically speaking, if you look at the countries that have industrialized successfully the answer involves trade protection and industrial policy. Of course if the answer were as simple as “try some trade protection and industrial policy” then we wouldn’t have poor countries. The classic public choice critique of trade protection and industrial policy—namely that it’s likely to end in corruption and incompetence rather than major economic breakthroughs—is perfectly sound. But that simply goes to show that industrializing is hard because good governance is hard, not that you shouldn’t try.
I think the reason economists don’t like to properly acknowledge this is that the case for protectionism and industrial policy proves too much … Once you say “maybe we don’t want an efficient allocation of resources after all” then every rent-seeker and his brother is going to come popping out of the woodwork with some cockamamie rationalization for why he needs special favors. And the vast majority of these ideas will be pernicious. But the fact of the matter is that people are often interested in questions like “how can poor countries catch-up and industrialize?” or “how can rich countries encourage fundamental innovation?” and the basics of Econ 101 don’t have a great deal to say about these questions.
Like I said, a field worth reading about.
Before I forget: Jaconbin Magazine is running a book club here. The book is
Leo Panitch and Sam Gindin’s magnum opus, The Making Of Global Capitalism: The Political Economy Of American Empire. It is at once recognizable as part of this new breed of thinking on empire, and a book that brings it to new levels of detail and depth…Over the next couple of weeks we will run the inaugural Jacobin Book Club seminar on this book, which deserves to be widely read on the Left. Every couple of days we will post a contribution on an aspect of the work. Then Panitch and Gindin themselves will respond.
Join the Book club here.