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Commentary :: Labor
The Crises of Today's Economy
13 Sep 2016
The market is not a subject but an instrument. Nevertheless "the primacy of the market" has replaced "the primacy of politics." Neoliberalism actually serves the interests of finance capital. A doctor whose therapy causes sickness cannot understand this.

Or what we could learn from Smith, Marx, and Keynes

By Ulrike Herrmann

[This introduction to Ulrike Herrmann's new book "Kein Kapitalismus ist Auch Keine Losung," Westend Publisher, Frankfurt, 2016 is translated from the German on the Internet. Ulrike Herrmann is an author and economics editor of (Tagesanzeiger).]

Why are the rich rich and the poor poor? How does money function? What causes growth? When do economic crises erupt? Why is there unemployment? Children ask these questions but economists cannot answer them. Often they ignore these questions and prefer mathematical models that have nothing to do with reality.

The economy is mired in crisis. To lay persons, it is striking that the dominant economic theories are not right… The British queen Elizabeth II asked a question after the 2008 financial crash that remains in our memory: "How could no one have predicted this crisis?

The answer of the British economists is not less legendary. In a three-page letter, they admitted: "Your majesty, the collective power of imagination of many intelligent persons failed."

The queen was not the only one surprised why "many intelligent persons did not offer any better theories. Chancellor Angela Merkel did not accept any of the many proposals from economists. In the summer of 2014, she was invited to Lindau where the Nobel Prize winners for economics met. The chancellor did not spare the economic royalists. In a courteous but determined way, she criticized them for making an absurd claim of truth. Economists should "have the honesty to admit mistakes or blurred thinking" when they weren't entirely certain.

Unfortunately, economists do not sit isolated in an ivory tower where they cannot do any harm. No, they are more powerful than any other discipline. They are among the highest political advisors and are represented in all groups of experts. It is not an exaggeration to say the mistakes of economists cost human lives and not only billions.

In the meantime, renowned economists are convinced their discipline is being reduced into quasi-religious sects that spread doctrinaire dogmas and have nothing to do with a rational discipline. As the US economist Paul Romer recently remarked: "The economy does not function anymore like an academic discipline. This problem seems to be intensifying." He reproached his colleagues for only "reciting dogmas as at an inter-religious meeting" and expecting "devout silence" in return.

The up-and-coming generation is also disappointed. Many students suspect economics mediates a caricature of reality. They unite in a "Plural Economics" network to reform the one-sided teaching. Important themes are not even discussed in their study. They learn nothing about the monetary system or economic history. Instead, only a single theory is taught: so-called neoclassicism that relies on mathematical models.

One of the wonders of the mainstream economy is that it holds unswervingly to its dogmas although several financial crises have shown these models are not true. However, neoclassicism makes itself unassailable by dominating the market for textbooks. Whoever influences students in the first semesters does not need to worry about followers. The theory battle is won.

That the mainstream economy simply ignores the most important theoreticians of its discipline is part of its dogmatism. Adam Smith, Karl Marx and John Maynard Keynes are distorted or hardly taught at universities. These theoreticians founded and revolutionized their discipline. Other economists were also important but only these three redefined the coordinates of the discipline. Without them, modern economics would not exist.

Mainstream economists still act as though Smith, Marx, and Keynes were "outdated" and only ghosts or phantoms of history. The popular trick is used that what is written in the present is regarded automatically as "modern." What arises today is "modern." This tautology hides the fact that an unparalleled process is occurring in the economy. Most theoreticians are directly returning to a kind of fictional Middle Ages. Today's economy acts as though Smith, Marx, and Keynes were yesterday – they are locked up in the day before yesterday.

In the economy, a school prevails that constructs its models as though the economy only consists of barters and swaps and industrialization never happened. While it may sound outrageous, most economists have no idea what it means to live in a fully developed capitalism where big concerns rule and banks create money out of nothing. These economists are always so amazed when financial crises occur.

The wrong tracks of mainstream economics can only be understood when the alternatives are known: Smith, Marx, and Keynes. Like all theoreticians, they were children of their times and some of their ideas were refuted by the historical development. Unlike today's economics, they raised essential questions – and looked around in the real world. Therefore their analyses are still up-to-date and their errors reveal more about capitalism and its dynamic history than the theories of mainstream economists could ever reveal.

The title of my book is meant very ironically: No capitalism is no solution aims directly at the mainstream economy that always acts as though one could withdraw into the healed world of the little weekly market where only apples and pears are sold.

The title also obviously alludes to the fact that abolishing capitalism is not simple – an experience already made by Marx. Capitalism is a total system that penetrates all areas of life and not only the economy. That is the reason it is so gripping. The adventure called capitalism can be best experienced when its wisest theoreticians are known: Smith, Marx, and Keynes.


Brilliant minds elevated "the market" into a "higher being" of the postmodern age to which we must submit. The primacy of the market replaced the primacy of politics. A little contribution to the "new Enlightenment"

By Stephan Schulmeister

[This article published on August 31, 2016, is translated from the German on the Internet, Stephan Schulmeister is an Austrian economic researcher and author of many articles and books critical of mainstream economics.]

"Enlightenment is the exodus of people from their underage existence of their own making," Kant said. While the theories of Hume, Smith, Kant, Rousseau, Ricardo, Mill, Marx and Keynes are very different, they had a common goal: emancipating people from "higher beings" and their earthly representatives.

Struggling for basic rights through the middle-class revolutions and for the social state through the workers' movement are the most important examples of the emancipation process. A comparison of the workers' situation in the 1970s and the 1870s shows what people can do when they understand themselves as enlightened and solidarity subjects of history.

Today, four decades later, we all must adjust to the new "higher being," "the markets" (mostly the financial markets). "They" demand "structural reforms"; "they" act as judges, punish Greece and reward Germany. "They" live out their feelings on stock exchanges – today friendly, tomorrow euphoric and depressed the day after tomorrow.

Subjects to which we have to submit came out of markets as our (useful) instruments. The "primacy of the market" arose out of the "primacy of politics." How does this unique counter-enlightenment manifest?


This counter-enlightenment began in the 1940s. The success of "General theory" by Keynes (1936) inflicted a grave setback on his adversary Hayek. Hayek knew the heyday of Keynesianism and the welfare state was approaching. Hayek did not give up but devised a great plan: anchoring the principles of liberalism even if it took two to three generations (his estimate) because Keynesianism and the welfare state would lead to "serfdom." The first step of Hayek's plan was his book "The Road to Serfdom" (1944). His basic thesis was that "the development of culture was possible in that people submitted in the past to the impersonal powers of the market." He urged "humility before the market."

The last sentences of "General Theory" stimulated him: "The ideas of economists are more powerful than people usually think. In fact, the world is ruled by nothing else. Persons with practical intelligence are mostly slaves of some faded economists." Hayek and Friedman are faded today but the European elites are still their ideological slaves.

Hayek's model was the anchoring of socialist ideas in the heads of intellectuals by the Fabian Society. His second step was founding the Mont-Pelerin-Society (1947), a network of "original thinkers" (including later Nobel Prize winners like Hayek, Friedman etc), wealthy businessmen and important journalists. The neoliberal "counter-reformation" was prepared – very informally – in its framework.

The third step consisted in the production of anti-Keynesian theories. The thesis that harmful financial speculation was impossible (Friedman, 1953), that politicians only act selfishly ("Public Choice" by Buchanan, Becker, Stigler, 1960), that the market was more efficient than the state regarding "social costs" and environmental pollution (Coase 1960), that the 1930s Depression was caused by (monetary-) policy and not by the stock exchange crash and the austerity policy (Friedman, Schwartz 1963) and that full employment policy is senseless and only inflation increases (Friedman 1968).


The diligence of neoliberals (as they call themselves) is so admirable because they were smiled at condescendingly or ignored by the mainstreams of self-assured Keynesians in these 20 years. The heirs of the workers' movement believed they reached their goals. So Kreisky made fun of Hayek and Co. in the 1970s. Austria did well because we "exported" these economists. They all did not get the message what a brilliantly executed attack occurred (to represent wrong as right, more astuteness was needed to represent what was really true). The fourth step consisted of founding think tanks linked globally by the Atlas Network since 1981. Now there are 451 "free market organizations" in 45 countries.

In the times of the Cold War, neoliberals defined the term freedom and always understood freedom negatively as freedom from (state) coercion. The young today are much less free than 40 years ago if one considers the positive side, freedom as development chances.

The political realization of the counter-enlightenment began with the ending of fixed exchange rates demanded by neoliberals. OPEC reacted to two dollar devaluations with two oil-price shocks. Two recessions, higher unemployment, and higher state indebtedness followed. Neoliberals applied their pre-fabricated theories. The social state had to be dismantled. Wages had to be cut and the financial markets "un-fettered." All this happened "step by step" and led Europe into depression after the 2008 financial crisis.

Business (representatives) adopted neoliberalism as "their" ideology. Neoliberalism actually serves the interests of finance capital, not real capital. The sorcerer's apprentice syndrome strengthens the learned resistance of the elites today.

The situation of Keynesians in the 1980as resembled the situation of neoliberals 40 years before. To Thatcher and Reagan, it was clear the social state was finished. Neoliberals preached individualism but acted collectively. On the other hand, "critical" economists played solitaire.


A doctor whose therapy causes sicknesses cannot understand this. Therefore our elites are in great distress and urge more market and more counter-enlightenment. They no longer believe Europe can lead out of the crisis. What will happen? The intellectual achievers may make the effort to decontaminate the rubbish of the counter-enlightenment from their heads instead of ruminating about a new Enlightenment. This rubbish is the breeding ground of rightwing seducers. To the neoliberal person as only an individual, selfish, rational and competing being, they present their person in the social warmth of national communities, in demarcation from those who are different.
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