Marx’s Economics Revived

Introduction to Uno-Sekine Approach

Part II

[(6) How do you understand the current, world-wide economic crisis within the longue-durée history of capitalism? What, if any, are the potentials for social transformability that this crisis generates? What is called for to realize such potentials?]

6a) What is Uno’s view on the world economy after the war of 1914-17?

I have already referred to Uno’s considered view that the world economy after the war of 1914-17 does not define a new stage of capitalist development. To his 1970 definitive edition of Keizai Seisakuron (Economic Policies under Capitalism), which is widely regarded as the classical reference to his original idea of the stages-theory of capitalist development, he appended a short Memorandum containing some casual thoughts and observations on his thesis of “transition away from capitalism to another historical society” (let us call it his katokiron). This piece of work has, however, as much inspired as puzzled his followers. Most of the Japanese Unoists seem to follow the interpretation by Tsutomu Ôuchi (1918-2009), a junior colleague of Uno’s at the University of Tokyô, whose book entitled State-Monopoly Capitalism (1970) has been quite influential. It is true that there are some important points of agreement between Uno and Ôuchi. For instance, they both regard the adoption of the managed currency system by major nations, after their failure to restore the old system of the international gold standard, to have been an obvious sign of the beginning of the end of capitalism. They also consider that the involvement of the state in the nation’s economic affairs in the form of “inflationary labour policies” (by which they mean macro-economic policies aimed at a high level of employment and price stability) exceeds by far the confines of the typical trade policies of the imperialist state, such as cartel-inspired protective tariffs against dumping, which essentially served the key needs of finance-capital. However, I am certain that Uno would not have agreed with Ôuchi’s idea that the stage of imperialism, dominated by finance-capital, survived even after WWI into the so-called period of “state-monopoly capitalism”. Thus, even though, as generally believed, the latter period was a new phase of the “general crisis” of capitalism, and so could no longer retain its more vigorous pre-1914 “classical form”, Ôuchi nevertheless insisted that it essentially belonged to the age of “imperialism”, the final stage of capitalist development. But if so, the period of state-monopoly capitalism which began only after the October revolution of 1917 must also be regarded to be under the continued domination of finance-capital, even in its somewhat attenuated form. This view is diametrically opposed to Uno’s, which was that the stage of imperialism definitively ended with the war of 1914, the first and the last imperialist war, and that, with the demise of finance-capital, a new post-imperialist stage of capitalist development could not be defined. The trouble, however, is that Uno’s own argument on this point was by no means sufficiently convincing. Many of his followers, including myself, could not obtain a coherent enough picture of the world economy after Versailles according to Uno. Ôuchi’s State-Monopoly Capitalism tried to fill in the gap, in a rather eclectic fashion, by combining Uno’s stages-theoretic approach to capitalism with the prevalent and more conventional Marxist view on the world economy after the war of 1914-17. Perhaps, this makeshift solution was all that was possible at that time.

After a long search in the dark, however, I have recently felt enlightened on this matter by the works of Mitsuhiko Takumi (1935-2004) and Hyman Minsky (1919-1996). Takumi, after his extensive study on the World Depression of the 1930s, came to the conclusion that the crisis of 1929 in the United States could not be viewed as another “capitalist crisis”. This view is diametrically opposed to that of Ôuchi, who believed that it was just another capitalist crisis, and, as such did not lose its self-healing or recovery power, except that, because of its uncommon severity in the prevailing climate of the “general crisis of capitalism”, rather expeditious political interventions could not be avoided, and these were deemed to have inadvertently but decisively changed the future course of the world economy. Takumi’s view, in contrast, is that the crisis of 1929 initiated a deflationary spiral, involving a fall in the output and employment of leading industries. Normally, a capitalist crisis is followed by a sharp fall of product prices in the leading industrial branches, so that, for instance, in the stage of imperialism a crisis meant a catastrophic fall in the prices of such products as coal, iron and steel. Thus, while the low prices of these products persisted during the stagnation period, innovations were introduced in the method of producing them, which eventually enabled them to be produced at lower production-prices than before. That was sufficient to re-launch the reproduction-process of capitalism under a new system of values. Yet, there is no sign that this mechanism operated after the crisis of 1929. It is not that the prices of many important commodities (especially those of food and primary commodities) did not fall. They did, and catastrophically. What happened, however, was that, before these prices fell, the physical scale of operation (output and employment) of the leading industries shrank, because these were Fordist producers, meaning that their products had to be sold at rigid supply-prices equal to the unit-cost of these products suitably marked up.

After the First World War, the centre of commodity production shifted from Europe to the United States, where Fordist industry was becoming increasingly prominent. I use this term, Fordism, in the special sense of representing the “oligopolistic industry that (often) produces durable goods by means (always) of durable capital-assets”. In other words, the Fordist production embodies the Minskyian characteristic of crucially involving and depending on “durable capital-assets”. However, “the production of durable commodities by means of durable commodities” cannot be so easily operated in a capitalist-rational fashion, inasmuch as the “contradiction between value and use-values” can no longer be so easily surmounted. Both the laws of value and of population, the two basic laws that constitute the crux of capitalism, were, therefore, paralyzed; and so also was the self-recovery power of capitalist crisis. The intervention of the central (or federal) government in economic affairs became therefore unavoidable, and so what is now commonly termed the “mixed economy” with Minsky’s “Big Bank and Big Government” also became unavoidable features of the era. Uno himself as late as in 1970 did not seem to have quite grasped the nature of the changes that the world economy had undergone in these terms, given that he did not appear to have been well informed of the writings of Keynes or Kalecki. Yet, he must have viscerally felt the deep transformation of the world economy, during the interwar period and in particular following the Second World War. I believe that we must now squarely face the problem that Uno left behind, i.e., we must face up to the issue of what to make of the world economy after WWI. Uno broadly characterized it as essentially the phase of transition away from capitalism to another historical society. I call it the process of ex-capitalist transition, or of the disintegration of capitalism.

6b) How has the world economy evolved, in your view, since the Peace of Versailles?

In my view, this process passes through three periods. First, there is the interwar period of Great Transformation, here to borrow Karl Polanyi’s all too famous expression. WWI was the imperialist (and the first total) war, which in effect terminated the further stage-theoretic “development” of capitalism as such. Secondly, there comes the period, after WWII, of over a little more than three decades of Keynesian social-democracy, of which the first two, roughly the 1950s and 60s, materialized unprecedented prosperity under the relatively stable Pax Americana; but the last decade of the 1970s was plagued with “stagflation”. The third and last period of ex-capitalist transition began with the resurgence of neo-conservatism in the 1980s, which entailed the liberalization of finance. With the subsequent fall of the Soviet Union, the tendency towards the globalization of the world economy under U.S. hegemony confirmed and extended the dominance of finance over industry, not only in the United States but also worldwide through the deliberate globalization of the economy. This period still continues, but in an increasingly desperate fashion. I do not have time or space to review all these three periods in detail, but their minimal characterization is as follows.

The first period, that of the Great Transformation, was rather clearly divided into the decades of the 1920s and 1930s. During the first one, public opinion generally expected a return to “normalcy”, meaning the pre-1914 capitalist order based on the so-called “symmetric gold standard” (Temin), given that the vast majority was still unaware of the profound transmutation that the world economy had undergone due to the first total (all-out) war. As the illusion of a “return to normalcy” was shattered by the crisis of 1929 and the Great Depression of the 1930s which soon followed, the faltering bourgeois democracies found themselves besieged by the collectivisms of the right (fascism) and of the left (bolshevism). The world economy began to recover from the persistent doldrums of the Great Depression only when signs of the impending WWII had already become apparent. The second period was the era of the Cold War, in which the world was divided into the two opposing camps. In the West, the U.S. hegemony was unchallenged during the 1950s and 60s, though it quickly crumbled in the 1970s. It was also the new era of the “mixed economy” based on Keynes and petroleum. It worked well, in the first two decades, because “unit labour costs” were declining due not only to the increasing use of petroleum as energy, but also to the application of petro-chemistry, which enabled the replacement of natural fibers, resins and soaps with synthetic materials. If unit labour costs decline, the profit rate will increase for the same commodity-price, which should encourage private investment. In this climate, even a mild fiscal policy would work wonders, to the extent of realizing mass consumption and the affluent society. What happened in the 1970s was the reverse, as unit labour costs tended to rise, i.e., as money-wages were raised more rapidly than could be offset by the rising productivity of labour. Under those circumstances, a vigorous fiscal policy will not stimulate private investment, unless the prices of Fordist products are also raised. If there is cost-push inflation for whatever other causes, an expansionary fiscal policy will certainly exacerbate it. This in the main explains the persistence of stagflation in the 1970s.

There was not enough time, however, for bourgeois economics to figure out why the stagflation could not then be so easily controlled, while many other unanticipated difficulties, both economic and political, arose one after another to shake the so far unchallenged U.S. hegemony in the West. The fear of American decadence vis-à-vis the Soviet Union which then still appeared implacable, coupled with the intellectual vacuum that paralyzed the economics profession, worked to the advantage of the financial interests congregating around Wall Street. They had long vegetated under severe regulations by virtue of the New Deal laws on banking, but had been reviving vigorously in international money markets, especially after the Oil Crisis of 1973. It was a golden opportunity for the financial interests to win back the lost territory inside the U.S. borders from the industrial interests, which, together with organized labour, had been the primary beneficiary of the Keynesian fiscal policies implemented in the context of the “mixed economy” that thrived after WWII. As President Carter’s office neared its anti-climactic end, the financial interests joined forces with the Chicago school to forcibly oust Keynes from macro-economics. First, monetarism was mobilized to control inflation, with a stringent squeeze on the increase of the money supply; then, Reaganomics, with its intense anti-union messages and policies ended by arresting the persistent rise in unit labour costs. But the price of the success in controlling inflation was the elevation of interest rates to an unprecedented level, which, in addition to mortally wounding the debt-ridden developing nations, also made it impossible for American commercial banks to abide by the legally restricted interest-rates which they could pay on time-deposits. Thus, the latter began to be withdrawn swiftly from banks to flee to other financial firms, which were prepared to pay a more reasonable reward to the lenders. When this regulation was finally lifted in 1983, a further de-regulation of finance was signaled. The A&M boom that soon followed made it clear that finance now called the tune, which industry had to follow. This heralded the coming-into-being of “casino capital”, which was to become the principal player in this third and last period of ex-capitalist transition.

6c) How do you characterize the current state of the world economy from your Unoist point of view?

The coming into being of casino capital is by far the most significant feature of the present-day world economy. Casino capital may also be understood to be the agent of the so-called “financialization” of the economy. It must, however, not be confused with finance-capital which in the past dominated the stage of imperialism. The theoretical foundation of finance-capital is interest-bearing capital, which explains the conversion into a commodity of capital itself or its “dualization”, that is to say, the separation of real capital in motion of the joint-stock (or corporate) capitalist enterprise from its fictitious form of equity shares capable of being traded piecemeal in the capital (securities)market. Whereas, in the pure theory, the trading of capital in the form of equity shares is strictly “notional”, it was actually practiced extensively in the stage of imperialism in the hands of finance-capital, as already pointed out. The reason was that investment in heavy industries was at that time far too costly for, or surpassed the resources of, individual capitalists, due to the “bulking-large of fixed capital” (to use Uno’s expression). It was then necessary to assemble as much investible funds available in society as possible within one company in order to convert them undivided into its real capital. The theoretical base of casino capital, however, is not interest-bearing capital, but the much more basic and primitive form of money-lending capital, which is sometimes characterized as an “irrational form of capital”. For, it can easily turn into loan-sharking and destroy the normal operation of sound capitalist enterprises. For instance, if it is allowed to collect interest higher than entrepreneurial profit, it can easily suffocate capitalist industry. It is for this reason that, in the theory of a purely capitalist society, the operation of money-lending capital as such is excluded, except as loan-capital, a form of differentiation of industrial capital itself, which makes the buying of commodities “on credit” possible. For, to the extent that the credit sale of commodities expedites the turnover of industrial capital, there will be room for loan-capital to contribute, if indirectly, towards the production of more surplus value (or disposable income) by industrial capital. Money-lending capital was quite active before the evolution of capitalism. Perhaps its main function was to hasten the dissolution of the old, pre-capitalist relations. Its reappearance in the new form of casino capital may well be an omen of the impending end of capitalism (in the sense of the capitalist mode of production) itself.

The return of money-lending capital in the form of casino capital suggests, first of all, that idle funds convertible into capital are no longer “scarce” as they used to be in the age of imperialism. However, we must always distinguish between existing idle funds in the form of monetary savings from out of already earned disposable incomes (or surplus value), and potential idle funds in the sense that, if I sold a commodity for cash now, it would then be saved by me and would have become idle money in my hands. Loan-capital converts the latter into active credit-money to buy commodities, the use of which expedites their circulation and thus enhances surplus-value production, i.e., enables more disposable incomes to be produced than in its absence. But, existing idle funds presuppose disposable incomes already earned, part of which may be saved instead of being spent (consumed). The savings, however, occur in the money form in the first instance, constituting existing idle funds convertible into capital (i.e., capable of being invested in real capital). It is important that these idle funds should be transformed into investment, or additional real capital, as soon as possible, that is to say within the same market period. For, failing that, the economy will necessarily turn deflationary, producing less incomes and employing less labour in the following period. But casino capital is, by definition, such that it seeks to profit from money games, which implies no intention of transforming the existing idle funds in its possession into real capital. Therefore, the more it profits in money games (i.e., speculative activities), the more it adds to the stock of existing idle funds inconvertible into capital (and hence incapable of producing real wealth). In other words, the more casino capital accumulates itself (by using high-risk-high-return “derivative commodities”, invented in the light of “financial engineering”), the more deflationary the economy will be, and the more impoverished will also be the society built on it. It, therefore, follows that there is not the slightest vestige of capitalist rationality left, rationality which follows from the true definition of capitalism by capital itself (or economic theory as it should be) in the present system of the world economy dominated by casino capital. Is not the latter anything else but the Grim Reaper of capitalism itself? Yet, according to the blind lesson of bourgeois economics today, which has ousted Keynes so as to be co-opted and sponsored by casino capital for staying in its service, we are made to believe that the contemporary economy is still “as capitalism should be”, i.e., the same “capitalism” that was once the dear old cradle of Western democracy, and which was supposed to combine “economic rationality” with “individual freedom”. That is most definitely no longer the case.

6d) How is casino capital related to the neo-conservatism promoted by Reaganomics and Thatcherism?

Casino capital came into being on the heels “neo-conservatism” which appeared for the first time towards the end of the 1970s, and its economic component spread vigorously thereafter in the forms of such doctrines as Reaganomics and Thatcherism. These professed the idea that “the smaller the government sector, the more revitalized the private-sector activities will be, and so (for some reason) the activities of the whole economy as well”. It also claimed that this goal would be achieved primarily by such measures as de-regulation and tax-cuts. The reason why these measures were so strongly campaigned for and put into practice then was that the empowerment of organized labour and the bureaucratization of industrial management had perhaps proceeded much too far in both the United States and Great Britain, and were thought to be primarily responsible for the slowdown of their national economies.

Neo-conservatism was a reaction against the welfare state, which had replaced the traditional bourgeois state by adopting the “mixed economy” in which the government sector spends at least about twenty percent of gross domestic expenditure (GDE) permanently. It is therefore necessary to review the evolution of the welfare state as it first arose and failed in the West in the early post-WWII years. During the interwar period, the conversion of the traditional bourgeois state into the new welfare state was not yet pursued in earnest, even though it was manifest that the traditional bourgeois state was no longer functioning adequately, especially in the 1930s. That was why the Western democracies, represented by Britain and the USA, found themselves besieged by the collectivisms of the right and the left, which eventually ended in the Second World War. Only after that catastrophe, and especially with the subsequent evolution of the Cold War, was the urgency of replacing the old bourgeois state by a new welfare state realized in the West. The reason was that, with the advent of the Soviet Union which undoubtedly exerted a powerful political and moral influence on labour movements around the world, the reproduction of labour-power could no longer be left to the automatic operation of the free labour-market. It was no longer convincing that the market could peacefully settle the conflicting interest between labour and capital. The Western democracies, in other words, had to face the “general crisis of capitalism”, by transforming the traditional “bourgeois state” into a novel “welfare state” in order to mitigate class struggles through the promotion of industrial peace. This new system which was reinforced in the West under the Cold War had, however, its own problems. In the United States where industrial peace was the primary concern, the system of so-called collective bargaining developed, supplemented by the programme of unemployment insurance; in Great Britain where public health and education were emphasized, the national health insurance that “cared for all citizens from cradle to grave” and equally comprehensive rules for the protection of labour were instituted with the express purpose of appeasing the working class. In the meantime, many large American firms remained under direct contracts with the Armed Forces, while the postwar Labour government in Britain nationalized a number of large firms in heavy industries and public utilities. Thus, in both Britain and the United States, the welfare state as a new type of the nation-state warmly protected labour and industry alike. All this amounted to the substitution of the prewar vestiges of the antiquated bourgeois state infested with open class struggles for the generous and munificent welfare state in Anglo-America. To the extent that the latter remained the leading industrial centre of the Western world during the Cold War, this reorientation of democratic societies was both apposite and judicious. Yet, it also had the negative aspect of over-protecting large corporations and organized labour which weakened competitiveness and tolerated indolence, leading to the complacency of both bureaucratized industry and unionized labour. Firms freed from insolvency and workers from unemployment on a near permanent basis need not be motivated to do any extra work to compete and excel. The inevitable consequence of that trend was the stagnancy of hitherto relatively free markets for commodity production and circulation. These symptoms became apparent as soon as industrial production recovered outside Anglo-America, as its products were increasingly exposed to severe international competition. Surely, these were not a “non-issue” to be lightly passed over, and a reactivation of the private sector in the mixed economy might well have been a viable tactic not to be dismissed off-hand either. As already mentioned, to the extent that a rising trend in unit labour costs was becoming manifest, a novel policy approach to reverse the trend so as to revitalize the economy was justifiably called for. Clearly, a rising trend in unit labour cost suggests a failure in the reproduction of labour-power as a commodity.

Yet the issue was not faced as a new challenge to democratic industrial society as such. The nature and the significance of the problem were not even vaguely understood. The solution was, therefore, sought blindly and offhandedly by, and to the benefit of, the powers that be. Neo-conservatism merely wished to retrieve the dear old image (now become thoroughly anachronistic) of a “vigorous and competitive capitalism” before the era of the Keynesian revolution, mainly by depriving the working classes of its newly acquired rights. It only recalled one-sidedly the good old capitalism now gone by, such as its inherent dynamism capable of withstanding “cut-throat competition”, “creative destruction” for innovations, “promotion of the burning work incentives”, “giving a chance to the will to succeed”, and the like. It even claimed that, only because capitalism was traditionally saddled with periodic crises and had to survive the regularly recurrent “hard times” in depression, during which competition in the market was bound to be intensified, that it taught both the entrepreneurs and the workers the disciplines of hard work for success, the will to compete for excellence, the individual responsibility of “self-help” and the like. It believed that only the survivors of hardships would be rewarded in the end with “individual successes”, while those who waited for the charity of the wealthy and dole-outs from the government would not. It was this kind of self-serving, retrospective hyperbole with regard to the exaggerated past glories and dewy eyed nostalgia for the grossly distorted image of capitalism of old, perfumed with due dozes of the Protestant ethics and Hayek, that inspired the neo-conservatism of Thatcher and Reagan. Yet, as biased as they indeed were, they nevertheless acquired the strong political and moral support of many within the middle classes. Not only did they both serve more than a single term of office, but they also left an enduring imprint in the psyche of the posterity. All this means that the issue that they faced was real. It was how, in a democratic industrial society, the reconversion of labour-power into a non-commodity ought to be handled. But such an issue, which puts the destiny of capitalism itself into question, far exceeded the resources at hand in the prevailing context, and could not even be discussed within the confines of neo-conservative discourse. In the meantime, if its solution had an apparent if temporary “success” by imposing some lacerating “shock therapies”, they left no lasting solution to the very problem that industrial society had to face. It was merely circumvented by repressing labour to counteract the rising trend of unit labour costs.

It was against this background that casino capital came to the fore. Neither Reaganomics nor Thatcherism which represented neo-conservatism were originally conceived as agents of casino capital. Yet, in hopes of controlling inflation and inspired by convenient passéisme, neo-conservatism adopted the truculent monetarist policy of squeezing the growth of the money supply, the consequence of which was to elevate the interest rates to a record-breaking height. As this invited the unanticipated plight of the commercial banks which quickly lost their time-deposits as I pointed out in the above, it became mandatory first to “liberalize the interest-rates which they could charge on their time-deposits” to protect themselves. It was this liberalization under force majeure that led to the more systematic “liberalization of finance”, which enabled the triumphant return of casino capital. What was called “liberalization of finance” in the United States was more colourfully renamed the “financial Big-Bang” in Great Britain. In both cases, it meant the takeover of economic power by the financial interests (casino capital) from the industrial interests (the coalition of the managerial class and organized labour). Industrial society thus became a gambling society. Furthermore, this shift of economic power occurred at just about the right moment, when the Cold War was winding down, which went a long way towards reconfirming and completing the sway of both Reaganomics and Thatcherism. For, it was ultimately the threat of communism that had inspired the age of Keynes and social democracy. Thus, when the Soviet Union disintegrated, the unknowing Western media cheerfully frolicked over the “victory of capitalism over socialism”. But when the trumpet sounded its “victory”, capitalism ironically entered the terminal phase of its disintegration, and I am afraid precipitously, as Minsky’s “financial instability hypothesis” was about to follow an explosive path to its end with a resounding crescendo, as the economic system sought to function as if its ultimate dependence on the reproduction of labour-power could be entirely ignored.

[(7) In reviewing the process of the “disintegration of capitalism” above, you have referred in passing to the evolution of bourgeois economics during that process. The prevailing opinion today, however, is that bourgeois economics has somehow attained paradigmatic legitimacy and has as well been “naturalized” as an “objective science, however imperfect”. Such a view seems to be reinforced in the 1980s after the neoclassical resurgence and the ejection of Keynes especially after the end of the Cold War. How do you account for such development in bourgeois economics?]

7a)  Will you describe how bourgeois economics fared in the first two periods of ex-capitalist transition, i.e., during the interwar period and the period after the Second World War for about 30 years, prior to the so-called neoclassical counter-revolution? 

I have already described the development of neoclassical economics during the forty years spanning the Franco-Prussian War and WWI. During that period, however, it was not only the neoclassical school with its Parnassian stance that was influential. The more practically-oriented, German late historical school, led by Gustav Schmoller, with greater emphasis on economic policies (which it called Sozialpolitik generically) than on economic theory, was equally important and powerful if not more so, especially in such late-developing capitalist nations as Germany and Japan. However, the influence of that school quickly waned after the defeat of Austria and Germany in WWI, leaving the neoclassical school as apparently the only legitimate (or perhaps better bona fide) heir to mainstream economics. The sudden rise in the international scene of the United States, where the neoclassical school had been (through Marshall) encroaching upon the indigenous school of institutionalism (represented by Veblen, Commons and Mitchell), also clinched that impression. Neoclassical economics, however, inherited from its classical predecessor the complete neglect of the analysis of money in the economy, which made it blind to the reason why, despite the pious wish then almost universally shared for the restoration of the international gold standard, that project was doomed to fail.

Thus, in the absence of a credible advice, the political leaders of the time relied on their practical hunch and conventional wisdom in seeking a “return to gold” to no avail, which only magnified the deflationary trend already present inasmuch as they only had in mind the return to gold at the prewar parity. Then, there came the Great Depression of the 1930s which aborted all hopes of returning to gold, and the real cause of which no neoclassical economist could understand or adequately explain. As real economic life visibly deteriorated, disenchantment with capitalism, liberalism and democracy led to their being suddenly besieged and threatened by totalitarianisms of the right (fascism) and of the left (bolshevism), as I more than once pointed out above. Compelled by the circumstances, President Roosevelt opted in 1933 for the “New Deal” in the United States, which confirmed the unavoidability of economic intervention by the state (i.e., federal or central government) even in times of peace. Keynes’ economic thought was not yet well known; but a large number of American economists went to Washington to assist the New Dealers. This made economics a credible profession, in addition to being a key subject of in-depth academic study in universities, for the first time in history. Soon afterwards however, with the outbreak of the war in Europe, the Great Depression quickly faded away as the United States adapted its economy for war.

By the time WWII ended, the United States, which had risen to an unchallenged pre-eminence in the world economy, adopted the Employment Act of 1946, and this latter stipulated that it devolved on the federal government to ensure a high level of employment and stability of prices in the nation’s economy. Keynes had authored his General Theory in 1936, but at first it only baffled his neoclassical colleagues in Cambridge and Whitehall who could not see its real import. Only his students with more open mind could sense the revolutionary character of the book. Among them were two young Canadians (L. Tarshis and R. Bryce) who brought their teacher’s ideas to Harvard where, in view of its earlier exposure to the New Deal, Keynes was increasingly accepted. Elsewhere in the United States, however, the mood was much more hostile to Keynes; thus, he was frequently and casually stigmatized as a covert communist. The ideas (1) that the national economy of the day could no longer be run by the private sector alone, since, in the aggregate and ex ante, its savings were liable to exceed investment, and (2) that the government sector must routinely stand ready to compensate for that deficit in private spending, in order to prevent the economy as a whole from sliding into a bottomless deflation, were diametrically opposed if not held thoroughly revolting to the liberal (and neoclassical) creed. For, according to the latter, the Invisible Hand of Providence should always be trusted to lead the market to a pre-established harmony of conflicting interests. Such ideas as contravened this creed were, of course, much too “socialist” for the right-thinking American conservatives to countenance. However, the fear that, when the war ended and wartime measures were dismantled, a great depression might return to wreak havoc in the economy was also real and menacing. Thus, over the ten years that separated the publication of the General Theory and the Employment Act of 1946, America was divided between pro- and anti-Keynesians. The disagreement between them, however, had to be resolved willy-nilly in favour of the former, as the United States emerged from the war as the sole leading economic power, with its territory and productive capacity virtually unscathed by wartime devastations. Given this fact, Washington had to find ways to live with the Soviet Union, its ideological enemy and former ally. For, a simple return to the prewar regime of the bourgeois state, where class struggles would be intensified, would only abet the infiltration of communism into America, which was an impossible option. It was, therefore, necessary to stabilize American society by seeking industrial peace and class harmony along the New Deal lines. Not only was the stabilization of society necessary to rearrange postwar domestic conditions, it was also mandatory as part of the U.S. international strategy, especially after the onset of the Cold War. Presumably for this reason, the Employment Act which endorsed fiscal Keynesianism was adopted. As a matter of fact, that strategy soon turned out to be far more successful than was initially anticipated. The reason for that happy outcome was the radical “petrolification” of traffic and industry, as it was perfectly adapted for the rebuilding of a new peace-time economy, while raising the productivity of labour dramatically.

As already mentioned, the prevailing opinion during the 1920s was that a recovery of the pre-WWI “capitalist order”, together with the restoration of the smooth operation of the “symmetric” international gold-standard system was the best possible outcome. The unfortunate fact that the impossibility of this dream was not realized until the fateful crisis of 1929 made the Great Depression of the 1930s unavoidable. As the real economic life of society visibly deteriorated everywhere, doubts arose with regard to the efficacy of “capitalism” itself and the bourgeois-liberal democracy which represented it, until these were besieged by the collectivisms of the right and the left. The one on the right (represented by Japan and Nazi Germany) adopted an aggressive military stance, intent upon destroying the established capitalist nations with imperialist advantages, while the one on the left (represented by the Stalinist Soviet Union) was no less determined to put an end to capitalism and bourgeois democracy in favour of “socialism” and “the dictatorship of the proletariat”, garbed as a “people’s” democracy. The only option available then for the bourgeois democracies to survive was to reluctantly ally with the Soviets in the first instance to eradicate the more impending threat of the right-wing collectivism (represented by the Axis powers). This meant, however, that, as soon as the war ended in the victory of the Allies, an East-West confrontation leading eventually to the Cold War was unavoidable. Under such circumstances, it became both necessary and urgent for the Western camp to convincingly affirm and broadcast the superiority of its own regime in contrast to that of the “Eastern Camp”. Specifically, it meant that “capitalism” even if in a “modified” form, which still depended largely on the working of the free market for commodity-production, was better (meaning, more conducive to democracy and freedom) than totalitarian communism, an economy which had to be centrally planned by the state’s command. As already repeated, the so-called “capitalism” in this context was already in its process of disintegration, so that the “mixed economy” with substantial macro-economic interventions of the central state (which Marxists used to call rather incongruously state-monopoly capitalism) had to be accepted. Yet it was still felt far more congenial to and acceptable by the majority of the population in the West than the command-economy under socialism.

At this point, bourgeois economics (at the helm of all the other social sciences) was entrusted with the new mission of upholding this “modified capitalism” as superior to any other way of organizing the real economic life of society. The role of the ideological superstructure in all societies is to endorse, justify and promote the ruling hierarchy and vested interests of the existing society in one way or another. For, otherwise, society is liable to be infested with discord, ruptures and instabilities and could not be held together peacefully. Thus, for instance, in medieval Europe, Catholic Church tried to teach its religious cosmology which was believed to be the key to the integrity and stability of society, and so, that cosmology was inculcated at all levels, with perhaps the “natural theology” of Saint Thomas Aquinas reigning at its intellectual pinnacle. In the far more secularly-oriented contemporary age, where the (natural) scientific view of the world prevails, “economics” is meant to play the same (or at any rate similar) role, since it, of all the social sciences, appears to be the most credible, in the sense of being the closest to the natural sciences (and hence believed to be “objective” in some sense). I have referred to the mathematization of economic theory during the forty years preceding WWI; but, at that time, it was marginal (or infinitesimal) calculus that was central in that process. During WWII, however, economics learned from so-called Operational Research somewhat more sophisticated and powerful techniques in linear algebra, which were thought especially attuned to the study of the inter-industry analysis pioneered by W. Leontief, but which turned out to be applicable far more widely to many micro-economic theoretical issues. On the other hand, together with the adoption of macro-economic models inspired by Keynes, the collection and preparation of national-accounts statistics also made giant strides to the extent of entailing a proliferation of econometric studies as well. Under the circumstances, economics appeared to be increasingly “naturalized” in the sense of becoming as “objective” as natural science, as if to ignore the plain fact that a “natural science of society” would be by far the most preposterous oxymoron.

After the sputnik crisis of 1957, a new era of advanced mass education dawned in the United States and elsewhere in the West, and university curriculums were overhauled with a view to training Western youths to be capable of competing favourably with their counterparts in the Soviet camp. In economics, the so-called “neoclassical synthesis” popularized by Paul Samuelson became the main recipe to be taught systematically in Western universities and business schools, in order to inculcate the superiority of the Western democracies over the Soviet system in the minds of youths (especially of the bright, ambitious and upwardly-mobile ones, who could be easily recruited in future to be convinced spokespersons, direct or indirect, of the bourgeois-liberal ideology). Over generations, this has created a large population of “professional” economists, well grounded in neoclassical price theory and some Keynesian macro policy models. But this neoclassical “synthesis” was only a limited and half-hearted adoption of Keynes’ “multiplier concept” as macroeconomic income theory, ignoring almost totally the more subtle “uncertainty theory of investment” and “liquidity preference theory of money”, which constituted the crux of Keynes’ novelty. Besides, it was in no sense a genuine “synthesis”, since a thick wall remained between the micro price theory and the macro income theory that could never be crossed from one side to the other. For instance, no one could logically relate the macro-economic multiplier (the reciprocal of the propensity to save) with the micro-economic” price-consumption curve” derived from the familiar utility maximization of the individual under a budget constraint (which, of course, allows no saving out of income). This means that the much touted “micro foundation of macro theory” could amount to no more than a hollow battle cry. For how can the micro theory which permits no saving by the individual consumer serve as the foundation of the macro theory which routinely talks of savings-investment connections? In the dialectic of capital, by the way, it is the macro-law of population that determines the value of labour-power, thus providing a solid foundation for the micro-law of value that determines general equilibrium prices, and hence values (homogeneous labour directly or indirectly allocated to the production) of all other commodities, given the value of labour-power.

7b) Why was the faith in the “neoclassical synthesis” within bourgeois economics so short-lived, and how was it that it came to be replaced by the “neoclassical counter-revolution” of the 1980s in particular?

Up to the middle of the 1960s, economics of the “neoclassical synthesis” reigned as a highly credible new knowledge (conceivably as prestigious as the “natural theology” that prevailed in the late mediaeval age), despite its methodological fragility and shakiness as mentioned above. For one thing, the economists had to learn many new techniques, mostly quantitative, to respond to the new role assigned to their profession. They, therefore, had to devote their attention to more urgent and practical problems, and did not have time to worry about deeper and more sophisticated, methodological speculations. For another, it appeared as though they were quite successful in “prescribing” proper economic policies in the new context of the “mixed economy”, since the transition from the wartime to peacetime economy appeared to proceed rather smoothly. The great productivity of the “petrolified” new economy could respond to the voracious appetite for ordinary means of livelihood, the demand for which had long been suppressed in deference to wartime priorities. But the halcyon days of bourgeois economics thus reformulated under the Pax Americana did not last very long. There were a few basic reasons for that grievous turnaround.

First, the burden of military spending by Washington, at home and abroad, in order to defend the whole of the Western Camp during the Cold War was becoming increasingly onerous to America, and undermined its industrial advantage which had been remarkable in the early postwar years. As European and Japanese industry recovered, and as their products began to compete in world markets with their American counterparts, the latter were put on the defensive, which first led to an increasingly lackluster performance in the U.S. balance of payments, and subsequently led to the dollar crises in the 1960s. By the end of the decade, the United States was no longer capable of defending the so-called Bretton-Woods IMF system, which was basically a gold-exchange standard that hinged upon the fully credible American dollar. Secondly, the vigorous elevation in the productivity of labour due to the overall “petrolification” of the postwar U.S economy more or less ran out of steam in the course of two decades or so. Although the oil industry in the United States developed early in the imperialist era, it was not until the invention of the internal combustion engine, and subsequent improvements of it, that the real worth of oil as an efficient converter of heat into mechanical energy was widely recognized. It was for that reason that, up to the end of WWI, the main energy source that fuelled capitalism was incontestably coal and not oil. Yet, WWII changed the whole perspective regarding this matter, as it demonstrated the great advantage of oil over coal not only in carrying out warfare but also in rendering civilian life more comfortable and affluent. It also turned out that petro-chemistry could produce such synthetic materials as could effectively replace natural fiber, resin and soap, the supply of which had been limited. The tremendous rise in labour productivity that radically benefited U.S. industry in the first instance after the war was beginning to be exhausted towards the end of the 1960s. Thirdly, and perhaps most importantly, the “euthanasia of the rentiers” that Keynes had hoped for, not only failed to materialize, but its reverse (i.e., their vigorous return) in the 1970s also put an end to the Keynesian revolution. New Deal legislation in the 1930s had provided a strict distinction between commercial banking and other forms of financial operation, so as to avoid the former (which tended to be less lucrative) to be poisoned by speculative activities (which were riskier but promising higher returns). However, as euro-dollar markets developed early in post-WWII years, American banks increasingly shifted their activities offshore to circumvent regulations restricting them at home. Soon after President Nixon’s accession to the office, two critical events followed: the first was the end of the so-called external convertibility of the US dollar into gold, which suspended the Bretton-Woods IMF regime and opened the way for the demonetization of gold and the universal adoption of flexible exchange rates; the second was the Oil Crisis of 1973, which, by tripling the price of crude oil overnight, introduced a decade of “stagflation”.

Perhaps, Walter Heller’s book, New Dimensions of Political Economy, 1966, symbolized the acme of American fiscal Keynesianism. Heller was advisor to President Kennedy and the book was published before the Tet Offensive in the Vietnam War, and so it was full of self-confidence, which suggested that the economists had by then fully learned the arts and skills of macro-economic control of the national economy, and that to the extent of being capable of “fine tuning” it. Yet, ironically, it was from about this date that a series of events struck exposing the decline of U.S. industrial hegemony and in the process shaking the self-confidence of bourgeois economists. The cause of the so-called “stagflation” that ruled the 1970s was by no means simple. It appeared to begin with an international rise in the prices of primary commodities (food and industrial raw materials), which culminated in the explosion of the price of crude-oil through the agency of the OPEC cartel. Moreover, that came on the heels of the collapse of the Smithonian agreement, with which Nixon had hoped to redress the existing IMF regime to America’s advantage. This meant the end of the gold-exchange standard built on the full credibility of the U.S. dollar, and that event unleashed a universal adoption of freely floating exchange rates. When by that time cost-push inflation on the supply side became rampant, even while the economy stagnated at a low level of employment due to weakness on the demand side, Keynesian economists did not know what to do. Money wages having risen more promptly than labour productivity, unit labour costs rose universally. It meant that the Heller-type fiscal Keynesianism would not only be powerless but would also make things even worse by feeding on the inflationary pressure. Thus, the so far unquestioned prestige of Keynes understandably plummeted, giving way to monetarism as promoted and popularized by Milton Friedman, with the clarion call that “inflation was a monetary phenomenon”. This statement in itself was surely not false, but the only monetary theory that classical and neoclassical economics were cognizant of was the quantity theory of money for which money remained no more than a neutral “veil” of the real economy, which could therefore be “dichotomized” from the monetary economy. The great failing of contemporary macroeconomics with its obvious anti-Keynesian flavour lies in the fact that, while ostensibly introducing money into its paradigm, it completely fails to understand the real meaning and function of money in the economy.

7c) Why did “neoclassical counter-revolution” of the 1980s occur to bourgeois economics, and what, in your view, was its significance?

After the 1980s, with the resurgence of conservatism in America, the mainstream economics curriculum in leading universities gradually dropped the Keynesian content and became overwhelmingly “neoclassical”. As already stated, neoclassical economics is technically advanced in mathematical skills; but, content-wise, it is impoverished in that it has degenerated into an ideological apologetic of a “capitalism” that must be constantly updated, modified, revised or whatever, in the sense of being redefined to suit opportunistically and arbitrarily the hierarchy and vested interests within the existing society. What I mean by this is the following. If the “capitalism” to be defended in order to keep the Soviet threat at bay is something that would benefit a social- democratic coalition of industrial managers and organized labour, Keynesian economics (which calls for the “euthanasia of the rentiers”) will be most convenient and welcome; but, if another version of “capitalism” must be defended that promotes unmitigated freelance gambling and near-theft in financial markets, so as to assure a maximum freedom to casino operators, there is clearly no place for the continued presence of Keynes in the economics curriculum of prestigious educational institutions. Indeed, what made the neoclassical “counter-revolution” necessary in the 1980s in economics was that the guardian of the existing form of “capitalism” changed from industrial management in coalition with organized labour to the rule of more autonomous (in the sense of more self-sufficient) money-gamers, or, in short, the shift of power from the industrial to financial interests (from Main Street to Wall Street), first in the United States and then, through globalization, to the rest of the world. This process of a power shift (or a counter-managerial revolution accompanied by the sudden rediscovery in America that corporate firms belonged to the shareholders, not to the managers and other stake-holders) was again by no means simple and straightforward, since many complex factors were involved in it.

After the Oil Crisis, as frustrations mounted at home as fiscal Keynesianism seemed unable to cope with persistent “stagflation”, offshore American banks proved their remarkable prowess in the recycling of oil money with an agility and efficiency that no conceivable official channel that would require inter-governmental co-ordination and agreements could have hoped to accomplish. This gave great confidence to the financial interests nestled in Wall Street, which then swore to retrieve the territory lost to the industrial interests during the long period of sway by the New Deal and Keynesianism. By the end of the Carter administration, Paul Volcker’s tough (and apparently monetarism-inspired) Federal Reserve policy was introduced to arrest inflation, which, to the extent that it was successful, elevated interest rates to an unprecedented height, thus causing two unanticipated but serious and problems, as I have already remarked. One led to the “debt crisis” in which many developing countries were caught and ruined, and the other to the massive exodus of time-deposits from commercial banks to non-bank financial operators. By that time, the new Thatcher-Reagan era had arrived with the anti-Keynesian banner of “supply-side economics”. The keywords were “de-regulation and small government”, with the precept that “the smaller the government the more reactivated the private-sector economy would be”. Organized labour was also under pressure to abandon its many previously acquired rights in order to become more exposed to the “disciplines of the market”. In consequence, the rising trend in unit labour costs was arrested, which, in effect, rendered Reagan’s (military) Keynesian policy quite successful, though this point was never openly admitted. The plight of depository institutions (including commercial banks) led, in the first instance, to the de-regulation of interest-rate on savings deposits; but that entailed a more general and systematic de-regulation of finance, putting an end to the “euthanasia of the rentiers” and hence also to Keynesian economics. Behind this vigorous resurgence of economic neo-conservatism in Anglo-America and its propagation to the rest of the world through the policy of globalization lay the gradual extinction of the Soviet Union and the winding-down of the Cold War.

In the heyday of the neoclassical synthesis, it was generally thought that macro- economic “income theory” was Keynesian, while micro-economic “price theory” remained classical. Perhaps Milton Friedman was an outstanding exception in claiming all along the legitimacy of neoclassical macro-economics, based on the quantity theory of money. His timely fame and teaching were enthusiastically acclaimed by the younger generation of economists clustering around the University of Chicago. The fact that macroeconomic models no longer needed to abide by the constancy of the price-level opened the door to many innovations in the field, and that was rather “timely” as  “game-theoretic” thinking suddenly caught the fancy of economists and quickly permeated the field of price theory, the micro component of economics. Contrary to the traditional belief, the application of the idea of “non-cooperative games” among a finite number of players to the theory of market exchanges had, by then, shown that its general solution (called Nash equilibrium) was not Pareto-optimal (meaning that no one can be made better off without making someone else’s worse off), as can be readily seen through the celebrated example of the so-called Prisoners’ Dilemma. From this point of view, the traditional theorem guaranteeing that a competitive equilibrium of the Walrasian system would be Pareto-optimal turned out to be valid only when the number of traders in the market was deemed to be infinite, a special and limiting case of Nash equilibrium. In other words, the application of infinitesimal calculus to the economic theory of general equilibrium is reasonable only when the capitalist economy approaches its pure image at the limit. When the actual capitalist economy is more likely represented by the oligopolistic markets of interacting firms, it is hard to stick to a price theory that is based on the assumption that individuals and firms operate by “taking” the prevailing market prices to be given and unchangeable by them, and simply adapting to those parameters. For, under oligopoly, the market participants are quite aware of the fact that their own action will entail mini-max adaptations among their small number of main competitors. As soon as such a game-theoretic situation is presupposed in the market, the end result is never Pareto-optimal, meaning that the market does not optimally allocate resources, the upshot of which is that contemporary “capitalism” (or capitalism in disintegration to be more precise) is not in general led by the Invisible Hand of Providence to the much flaunted pre-established harmony of conflicting interests. If so, however, micro-economic price theory cannot be counted upon to demonstrate the eternal virtue of capitalism. The reason why the Chicago economists today are so eager to produce non-Keynesian macro-economic models inspired by the so-called “rational expectations hypothesis” is that it will in their vain hope somehow serve as an adequate substitute for the Invisible Hand.

7d) Given your view on the current state of bourgeois economics, what do you think of the prevailing opinion today that it has attained “paradigmatic legitimacy” in that it has been successfully “naturalized as objective science, however, imperfect”? 

I would like you to understand that the whole idea of “naturalizing” economics, or any other knowledge of society for that matter, in order to pretend that it can become “objective” in the same sense that natural science is objective, is a complete joke. Not only is such an idea preposterous in the extreme, but it is also impossible. Yet, so many great pundits of bourgeois economics, from Samuelson to Friedman, claim in unison that there is only one way to arrive at scientific (i.e., objective) truth, and that the economist must seek truth in the same way as the physicist does. That view is also widely shared, believe it or not, by many Marxists! In the study of scientific method, that position is known as “reductionism” and it is a false and misguided idea, as I have already stated many times. It is important to understand that human society (which we ourselves create, whether consciously or unconsciously) and nature (which stands out there and over against us, as ready-made by some power beyond us) are two entirely different objects of study, and so must require different methods of inquiry to arrive at their truths. Even the meaning of “truth” (or of the objectivity of knowledge) that we seek in each case cannot be the same. First of all, nature is never known to us totally, since it is not our own creation. Our knowledge of nature is bound to be “partial and presumptive (tentative)”; and so it must be stated in a “predictive, prescriptive and prospective” form. The knowledge of our own society, in contrast, is not so, because we ourselves create (organize and form) society, so that, if the knowledge of society is not “total and definitive”, that is to say, if we do not understand the thing-in-itself of society, it would be meaningless. In other words, unlike nature, society is never given to us from the outside, irrevocably and forever. Therefore, we have the right to reform, redesign and reorganize (i.e., revolutionize) our society, so as to creatively improve upon it. We can do that, however, only so long as we can work on its economic substructure, that is to say, so long as material (i.e., use-value) conditions evolve in such a way as to permit us to do so. The question is whether we can confirm that these conditions are objectively present or not. Such knowledge most certainly cannot remain just “partial and presumptive”; it must be “total and definitive”.

I have already stated above that the knowledge of our own historical experience is “grey” in Hegel’s sense, meaning that it has to be the knowledge of ourselves in the past (and by extension also in the present insofar as it is where the past necessarily led us). Our self-knowledge must be “post-dictive, descriptive and retrospective” because we cannot change our own past. It is for that reason that, unlike the knowledge of nature, our historical knowledge cannot be technically made use of. Only the “partial and presumptive” knowledge of nature permits us to utilize it in “technical applications” so as to enable us to conform to, or to “piggyback” on, it prudently, because the laws of nature operate on their own and essentially beyond our control and scruples. This fact does not mean that we should forget about the knowledge of society, such as economics, which refuses to be used instrumentally for smart-alecky “policy prescriptions” or in petty “piecemeal social engineering” à la Popper. For that would be prohibiting us from being enlightened by our collective self-knowledge, and thus committing us to remain animal-like (rather than fully human) beings. It is, moreover, important to recall that, only with the dawn of the modern age, did social science, and economics in particular, emerge as the study of capitalism, as a systematic body of knowledge. This means that, for the first time in history, humankind has been given a chance to know itself collectively in society. For, only when the economic substructure of modern (capitalist) society is fully known by economics, do we learn for the first time what we are and what we do in it, and, by extension (or in comparison), in other human societies as well. Put otherwise, the discovery of economics, concomitant with the evolution of capitalism, gave us the first chance to know ourselves in society (i.e., as social beings). But, capitalism comes into being only when material or objective (i.e., use-value) conditions for its existence become ready; it passes away when these conditions are no longer present. Although ideological (or religious) faith has a role to play in the evolution of capitalism, it does not determine its existence. It only works as a positive or negative catalyst in either expediting or delaying the necessary temporality of capitalism.

In the light of these reflections, it is simply unbelievable to me that the leading pundits of bourgeois economics are all so naïve and ingenuous (school-boyish) as to be duped by the evidently false (though superficially plausible) thesis of “reductionism”, and to thus in effect lose sight of what they are themselves doing in reality. Surely, there must be several explanations for this singular phenomenon. The most plausible one of them in the present vulgar age may, however, be that they were so brilliant and could learn the existing paradigm of bourgeois economics so quickly as to become quite young established authorities in the profession, which thereafter treated them very warmly, until they felt not only obliged but comfortable to defend rather than to critique it. In other words, they never really had a chance to reflect on what they actually do by becoming pundits of bourgeois economics, before they were caught and co-opted by the paradigm to become its mouth-pieces. I have been at pains to claim that, unlike economics in the Marx-Uno tradition, its bourgeois version has a role to play as the natural theology of capital. It is essentially an incantation in praise of the hierarchy and the vested interests of the present society which they want (unknowingly if innocently) to defend and perpetuate at all costs (that is, even when the use-value conditions no longer warrant the litany of “capitalism forever”). Undoubtedly the establishment is very eager to recruit such brilliant teachers as Samuelson and Friedman by lavishing on them all the worldly fame, praise and honour for their signal service of exalting this society, which, at present, is dominated by casino capital, and thus ideologically supporting it. Recall the serious hazard of approaching economics without taking a due antidote in advance! For, one gets so easily infected by the virus of bourgeois-liberal ideology as soon as one begins to learn about the pre-established harmony of the market, and feel empowered to play its tune (even though anything approaching it departed this world a long time ago). Marx was a very rare exception to the rule for having been impervious to that ideological indoctrination, as I pointed out earlier. But if Marx’s immortal work in economics is not apprehended in its full worth along the Unoist line, but trivialized instead as a mere weapon of his anti-bourgeois ideological campaign, that would only reinforce and perpetuate the “paradigmatic legitimacy” of a false economics.

Economics is a dangerous subject. For, in order to become adept in its paradigm one has to learn the rules of its game, which implies how to think “capitalist-rationally”. By the time one has learned to be capitalist-rational, however, it becomes difficult to realize the confines within which that rationality remains valid. The capitalist management of the real economy is rational, when and only when the most important and prevailing use-values of the real economy are more easily producible “as commodities” than otherwise. This is the point that bourgeois economics is determined to forget, and so never teaches; unlike the dialectic of capital, it fails to take the “contradiction between value and use-values” seriously. This means that it cannot really know what capitalism is all about; it can only worship (and believe in) capitalism, even when the latter is widely out of the right context. In other words, bourgeois economics is a religion and not science. As such it will defend “capitalism” (which may be as arbitrarily and opportunistically redefined to suit its present purpose), even when capitalism is in disintegration, having already completed its historical mission (or raison d’être). Even now, when capitalism is already in transition to another historical society, bourgeois economics remains determined to answer the siren call of “capitalism forever”. Such claims as “naturalized social science”, “paradigmatic legitimacy” and what not, are just parts of the smokescreen behind which to hide its true emptiness and false intention.

[(8) You seem to be saying that bourgeois economics is in effect wholly bankrupt, so that it cannot offer any viable solution to the present economic crisis which is tormenting the world economy today. In what way can we control the tyranny of casino capital and liberate ourselves from it? Can that be done within the scope of capitalism and bourgeois economics?]

8a) On what ground do you claim that bourgeois economics is incapable of saving capitalism? What is wrong with that approach and with capitalism in your view? 

I have already pointed out that bourgeois economics ignores the fact that capitalism consists of a temporary and uncertain union of the real-economic life of society (which must exist in one way or another in all societies) and its commodity-economic or mercantile management (which is historically unique to capitalism). That is to say, it fails to recognize the contradiction between value and use-value, the overcoming or surmounting of which generates (gives rise to) capitalism. This thesis implies that the two sides are not always meant to merge or blend into one, since they are different; yet, under special circumstances, they do accommodate each other to enable capitalism to exist. Those special circumstances occur when the side of real economic life (represented by use-values) does not raise too dogged resistance against the side of its mercantile management by capital (represented by value), of which the limiting case is when the use-values are just “nominal”. This is the case of a “purely capitalist society” which the dialectic of capital (or abstract economic theory of capitalism) presupposes. Such a society, of course, does not and cannot factually exist, yet it is nevertheless not a mere figment of the imagination. For, it is the real abstraction on the part of capitalism to actually purify itself in history that enables us to envisage such a society as a limiting point. It is only in this way that the once-for-all and historically transient institution of capitalism can be theorized, in the sense that its inner logic (or operational “software”) can be brought out into the open, as the dialectic of capital. Unable to comprehend this crucial point, bourgeois economics naïvely believes that an “instrumentalist” economic theory (which lends itself to our technical application) can be formulated in terms of the axiomatic method of tautological logic (as in mathematics and its applications to natural science). That would imply that bourgeois economic theory is expected to apply to any use-value space with equal validity. What used to be valid in the age of cotton should, in that case, remain so in the age of steel, and even in the era of Fordism, in which complex use-values are produced with sophisticated engineering as embodied in Mynskian “durable capital-assets”, that is, in what we may today call “plants and equipment”. This is quite different and must be distinguished from producing simpler use-values (be it wool, cotton or steel goods) with “tools and machines”. In other words, the historical dimension and evolution of capitalism is entirely ignored in the bourgeois discourse. This, however, follows from the application of the formally-logical (that is, necessarily axiomatic and tautological) method to formulate economic theory, which is supposed to be valid in all conceivable use-value spaces. In this way, it is clearly impossible to apprehend the present state of “capitalism” in a historical light, that is, from the point of view of evolving use-values.

Capitalism developed in the three stages of mercantilism, liberalism and imperialism, in which wool, cotton and steel were, respectively, the types of use-values that prevailed. Even in the process of its disintegration, capitalism (which has remained in its imperfect form to the extent that commodity production has survived) is undergoing significant changes, reflecting the rather precipitous evolution of the use-value spaces which can easily exceed the mercantile management of capital. For example, the present phase of ex-capitalist transition characterized by the dominance of casino capital would be unthinkable but for the prior development of the information-and- communications technology (ICT), which blends the production of commodities with artificial intelligence capable of sorting out information and communicating it. The advance of our life and industry, in consequence, is surely revolutionary and spectacular, though, in its wake, it also entails many such unwelcome and annoying problems as “hacking”, “cyber-attacks”, “cyber-crimes” “massive information leaks to offend privacy” and the like, which are difficult to control. When capitalism is in the process of its disintegration, the use-value space tends to diverge increasingly from that which it should ideally stand on. If this basic concept is ignored and if therefore we expect capitalism to be always present (if in states of imperfection) and securely so regardless of the evolving use-value condition as believed by bourgeois economics, it is a far cry to actually identify and comprehend the real state of things: a world economy in the throes of a systemic crisis today.

At present, capitalism is in the final phase of its process of disintegration. I have already suggested that this process evolves through three phases: the interwar period of the Great Transformation, the immediate post-WWII period of Keynesian social democracy and the most recent and final phase, which is dominated by neo-conservatism and casino capital. The present crisis of the world economy which dates from the fall of Lehman Brothers (in 2008) forebodes the end of an already disintegrating capitalism. In other words, when the present crisis is surmounted, a new historical society which will eventually replace capitalism (and which for convenience may be referred to as “socialism”, though no one knows as yet in full detail what it will eventually involve) must have already begun its formation. If so, there are already a few signs of capitalism’s demise that ought not be carelessly overlooked or dismissed as less than significant. The first thing that strikes me is that the present system under the domination of casino capital has no inherent tendency to seek capitalist rationality. It does not seek a maximum production of surplus value (or of the “disposable income” in the bourgeois terminology), but only maximizes the expropriatory gains accruing to the more powerful of casino capitals. In other words, it does not lead to a Walrasian general equilibrium which is Pareto-optimal, but to a Nash equilibrium of non-cooperative games, which is not so and hence which may easily imply the worst (that is, the least efficient) allocation of productive resources in society. That would mean the end alas of all the touted virtues of capitalism.

At the macro-economic level, this is reflected by changes in the nature of business cycles. What used to be more or less regular industrial cycles (of essentially the Juglar type) or modifications thereof is now replaced completely by irregular bubble-and-bust cycles, reflecting the changeable “moods” of casino capital. If the latter sees no or little speculative opportunity, the capital market finds itself in a protracted depression, which involves a state of radical liquidity trap, which is characterized by the coexistence of abundant idle money (inconvertible into capital) with scant active money (to buy and circulate commodities), the exact opposite of hyper-inflation. Since casino capital can always wait, however, there is no automatic cure to this state in the market. Only when the central government manages to lure casino capital into investing in a preselected field of industry that appears to be sufficiently promising, does investible idle money return to the capital market, inflaming passions which may lead to a bubble. The latter, however, will soon be out of breath as over-indebtedness in the economy becomes excessive, until it suddenly comes to an abrupt halt in a “hard-landing” with immense casualties, and fraught with the bitter aftertaste of fraudulence and deception that are always discovered just a little too late. Some artificially engineered bubbles, such as the IT bubble, involved some salutary economic effect in promoting the application of the information-and-communications technology (ICT) to industries, and thus massively elevating their productivities. However, there are far less commendable instances as well, such as the more recent housing bubble, which amounted to little more than the misuse of the obscure method of securitization to swindle subprime borrowers to their ruin. In either case, the government must have depended on the “cooperation” of casino capital which, for its part, has no inclination for itself to serve the public cause. For example, it habitually undermines welfare states by evading taxes, which it can do by simply operating on a “global” stage. That is to say, it can always hide in the anonymity of the fiscal paradise (the colourful French expression for “tax havens”), while awaiting the next chance to “make a killing” by wreaking havoc in some normally quiet and calm capital markets. Since the post-bourgeois nation-state has for years been weakened and impoverished by neo-conservatism à la Reagan and Thatcher which has left it with a dwindling tax base, it must rely on willing cooperation of casino capital to boost the economy. However, financial interests always retain the upper hand over the nation-state. Indeed, the former are not likely to act to suit the latter’s needs, while the reverse is more likely to be the case. That inclines me to believe that the continued dominance of casino capital in the contemporary economy must lead in the end to the demolition of the welfare state. That undoubtedly is contrary to the interest of human society, and so this trend must be terminated as soon as possible by the emergence of a new society.

What strikes me as most noteworthy in this connection is that the bubble-and-bust cycles in today’s world economy possess none of the regularity of capitalist business cycles. There is, in particular, no clearly discernible sub-phase of average activity between the ones of recovery and of overheating in its prosperity phase. That would mean in turn that there is no space in which the law of average profit (the law of value as it appears in the capitalist market) enforces itself in the present-day economy, since the point at which the demand for and the supply of labour-power tend to be equalized cannot be identified. If the value of labour-power thus remains indeterminate, so are the values of other commodities. An economy in which neither the law of population nor that of value can operate does not deserve the name of capitalism, which is another way of saying that the ultimate disintegration of capitalism is now quite imminent.

8b) You have also said that bourgeois economics talks nowadays much about “money” but possesses no credible theory of money. In what way do you think that its theory of money is faulty? 

Given the fact that to let loose the activities of casino capital constitutes a serious threat to contemporary society and its economic base, one tends to think that the best option would be to re-regulate them radically. However, these activities now occur on a global (trans-national) scale, and cannot be easily controlled by legislation in a few individual nation-states. Not only is it difficult to reach an international consensus initially, but it is also difficult to even enforce with equal stringency such regulations as are already agreed upon internationally by all the willing nations. Since the G20 of Pittsburg (2009), many possibilities have been explored and debated, but progress has been slow in putting effective measures in place. If so, we must seek another way to break loose from the grip of casino capital. The only way available to us then is to rehabilitate Minsky’s Big Government by letting it spend massively, but not by compelling the state to borrow more private money from the market, but rather by empowering the central (or federal) state to create (print) more money for fiscal spending. In other words, this amounts to using Minsky’s Big Bank not merely as the lender of the last resort, but as the supplier of additional fiat money for spending. I am quite aware that such a proposal provokes uproar and outrage as a knee-jerk reaction, since the whole idea of “printing money” is anathema to the current generation of “properly educated” and hence “right-thinking” economists. It is, however, necessary to first fully understand the significance of the demise of the international gold (including gold-exchange) standard system and the consequent “demonetization of gold” (or of any other commodity-money for that matter, which the exchange of commodities will by itself automatically generate). It is true that, in the dialectic of capital, the only money present is a commodity-money such as gold, which the act of commodity exchanges automatically brings into existence as the “general equivalent” (as the theory of “value forms” in the dialectic of capital explains without ambiguity). However, capitalism is in disintegration precisely because this kind of commodity-money has ceased to be generated, and had to be replaced by fiat money, the supply of which must depend on the discretion of the nation-state.

From time immemorial, a sovereign state has always exercised the “seigniorage right” to issue its legal tender currency by fiat. During the capitalist era, however, commodity money, such as gold, was used as international standard money, so that many sovereign nations opted to use it as the base of their legal tender currency, assisted by some subsidiary notes and coins convertible into gold. Thus, we have basically two kinds of money: fiat money and commodity-money. The advantage of the commodity-money is that its required quantity is regulated automatically by the rules of the market, and the nation-state need not, in principle, interfere with its supply. The gold-producing sector which produces both monetary and non-monetary gold will expand automatically, when that sector becomes relatively more profitable than other sectors, and will contract automatically if the reverse situation arises. So long as gold is produced as a commodity, this must be the case for as long as the law of value enforces itself. Therefore, no agency need be concerned with the supply of monetary and non-monetary gold, and an optimum supply of money will automatically prevail in the end. Today, however, gold is de-monetized, and all countries use fiat money in one way or another. In other words, all countries adopt the managed currency system which is just another name for the fiat money standard. Under this system, the supply of money is determined by the discretion of the state or its monetary authorities. Bourgeois economics does not clearly explain the difference between these two systems. Its theory of money is deliberately left ambiguous.

Apart from the above, we must also distinguish very clearly between the two basic functions of money, which distinction bourgeois economics also wants to equivocate on. In Marxian economics, money that is used to purchase commodities as “means of circulation” is called active money, whereas money eventually convertible into capital, but is held temporarily as a “store of value”, is called idle money. The distinction is important because inflation means an excess of active money even while there exists a simultaneous scarcity of idle money, whereas deflation means the reverse, i.e., a situation in which active money is scarce, even while idle money is excessive (meaning that it cannot be invested in real capital). It is this point that fails to be correctly understood by bourgeois economics. The quantity theory of money which the neoclassical school adopts believes that all money is active (means of circulation) and allows for no theory of idle money (and so, for instance, childishly defines inflation as “too much money chasing too few commodities”). All it does is to suggest that the “velocity of circulation” can vary for whatever reason from time to time. Milton Friedman’s famed metaphor of “helicopter money” also assumes that greenbacks that fall from the sky like “manna from heaven” are used only as active money and will never be held as idle money. Keynes in contrast did distinguish the demand for money “held to satisfy the transactions motives” (active money) from that “held to satisfy the speculative motives” (idle money). But he did not go on to explain how each of these two sorts of money could be supplied. Given these critical lacunae, bourgeois economics explains poorly the process of credit creation by commercial banks. Each of these banks originally used to issue their own individual banknotes (as private credit-money) to discount commercial bills or to extend short-term loans in order to expedite the circulation of commodities. However, they could do so safely only up to the extent to which they could safely stand ready to “cash their notes into gold on demand”. Later, with the centralization of the safe-keeping of the gold reserves and of the notes-issuing function based on them, the banknotes of each commercial bank were replaced by the demand deposits that its customers held with it, and the notes circulating outside banks by the central banknotes.

These “centralizations”, however, do not change the basic fact that each bank’s ability to “create credit (money)” is limited not only (on the supply side) by the extent to which it can safely stand ready to “cash on demand” the deposits it holds on hand on behalf of its customers, but also (on the demand side) by the extent to which its credit creation is itself “wanted by” the current state of business transactions. Under the gold standard, in other words, the amount of bank credit is limited not only by the gold reserve available to the nation, but also by the extent to which the business climate in the nation requires credit expansion (to enable purchase of commodities on credit). Likewise under the managed currency system, the supply limit of the banks’ credit creation is set by the amount of the reserve (or base) money made available by the central bank to the banking system; and the demand limit for the same is set by the need for such credit by the current state of the reproduction-system in the nation. Monetarism errs in believing that only the supply limit is relevant, and thus ignoring the demand limit for the banks’ credit creation, which leads to their misconception that the “money supply” is a policy variable that can be dictated by the authorities, even when banks cannot find credible borrowers. Banks are not always “fully loaned up” even if that is most desirable, since lending always involves risks of default which may be fatal to them. [Milton Friedman and other Chicago economists believe in the so-called 100%-reserve banking, in which case, of course, the money supply and the base money that the central bank creates for the banking system would be equal to the money supply. But that is a purely “imaginary case”, which has never occurred under any real capitalist economy. I, therefore, need only to state here that the dialectic of capital recognizes no “capitalist” economy, in which loan-capital does not operate or commercial banks do not discount commercial bills. Friedman et alii only sow confusion by mixing their own chimera with capitalist reality.] There was a celebrated controversy in the 19th century between the Currency School and the Banking School, the former affirming that only the supply limit of credit creation was relevant, while the latter insisting on the importance of the demand limit for the same. A similar controversy in more modern parlance may continue to be repeated, but the real issue today is how, under the managed currency (fiat standard) system, the money supply (i.e., the supply of active money) can and must be adjusted to that which is deemed near “optimum”.

In order to focus on this issue, let us write the equation of the money supply under the gold standard as M = kG, where G is the nation’s stock of monetary gold or specie money in reserve, and k  k* equals the banking multiplier (or the extent to which the banking system can generate credit money on the basis of the gold reserve available to it, without exceeding the safety limit, k*, whether legal or conventional). In this case, given the stock of monetary gold, the money supply will be equal to as much credit money as the banks may create. The latter will consist of the whole sum of the demand deposits that the commercial banks hold in the name of their clients, together with a small amount of cash circulating outside the banks. In other words, they believe that only banks can create active money, which they do by discounting commercial bills or by extending loans, assuming that gold by itself does not directly circulate, and that the small amount of gold tokens which circulate can be ignored. If the government holds an account with the central bank into which fiscal revenues are deposited, it can only be part of kG, paid as taxes to the treasury, so that if, 0 < θ < 1 is the tax rate, only (1 – θ)kG will be the quantity of active money in circulation, unless the government spends its tax revenue, θkG. In the bourgeois state, however, it could safely be assumed that, over time, government will spend all of it back to circulation through its budgetary spending anyway, so that the role of the central bank as “the bank of the national government” is only a minor detail which need not detain our attention unduly. Thus the above is more or less the image of the money supply that most economists have in mind, even now that the gold standard has long been abolished. They, therefore, write M = kF, by simply replacing gold money G with fiat money F. I believe, however, that this simple rewriting of G by F tends to equivocate on the crucial difference between the gold standard system which functioned before WWI and the present system of fiat standard system.

Under the gold standard system, G meant the nation’s total supply of monetary gold which stayed in the vault of the central bank to function as reserve of the credit money that the banking system could create. Gold being a commodity-money, the supply of monetary gold was automatically determined by the market, there being no significant room for the state to interfere in its regulation. Under the fiat standard, on the contrary, the supply of fiat money depends entirely on the discretion of the sovereign state, which has the seigniorage right to issue legal tender currency. It is often believed that the central bank has the authority to regulate the supply of (high-powered) base money, on the basis of which commercial banks decide the extent to which they may discount trade bills safely. But, of course, this authority stems from nowhere else but the seigniorage right of the sovereign state. The so-called independence of the central bank from politics, sometimes vociferously chanted, must not create the false impression that the central bank belongs to the private sector of the economy. Nor should the old word seigniorage mislead one to the image of an old absolutist state. All of the perfectly modern, democratic states have been compelled to abandon the gold (including gold exchange) during the 1970s, and to adopt a monetary system based on fiat standard. My claim is that, under this system, the sovereign state must regulate the supply of money in the nation in two ways: M = kF1 + F2. Here, F1 is the supply of high-powered (base) money to the banking system (in its account with the central bank) and F2 is the supply of fiscally spendable money directly to the (central or federal) government (in its account with the central bank). As for the indispensability of F2 the explanation follows.

8c) In what way are we currently stuck in the grip of deflation and how, in your view, is casino capital preventing us from seeing the right way out of this?

Casino capital, being a variant of money-lending capital (not of finance-capital), prefers to see the national economy in a deflationary situation, which is more favourable to lenders than to borrowers, whereas, prior to the ascendancy of casino capital, a situation of mild inflation, more favourable to borrowers than to lenders, was thought to be more beneficial to the national economy. As already explained, casino capital thrives in speculative money games, with little or no intention of converting idle money in its possession into real capital to produce wealth. In a mildly inflationary situation, more idle funds tend to be invested (i.e., more quickly converted into real capital), which, by destroying idle money to that extent, will serve to restrict the activity of casino capital. In a deflationary environment, in contrast, in which real capital formation slows down, casino capital can always wait without losing anything (for example, by fleeing to a “tax haven” where abnormally low taxes and anonymity prevail), while amassing a large enough stock of idle funds with which to gamble one day in a spectacular money grab. It frequently does so, after intentionally maneuvering to destabilize the normally quiet capital market, since it can best profit from buying and selling quickly as well as massively in the volatile condition of a destabilized and panicky market. In order not to provide more opportunities for casino capital to play their reckless games at the expense of honest citizens and sound businesses, the best way is to refrain from uselessly and blindly “feeding the economy with more liquidity”, which means creating far more idle (as opposed to active) money than could reasonably be expected to be invested, and thereby tacitly encouraging the speculative activities of casino capital. Yet, in most “advanced” countries today, the monetary authorities are, knowingly or unknowingly, eager to resort to precisely this erroneous method, under the name of Quantitative Easing (QE), expecting that, with a “vigorous infusion of liquidity into the system” they can somehow combat “deflation”. However, things do not work that way. This naïve belief merely demonstrates the unfortunate inability of the economists, untrained in the Marx-Uno tradition, to distinguish between active and idle money.

The problem with the so-called monetary policy of QE, practiced by many central banks today, is not only that it remains completely powerless to combat deflation once the economy is stuck in that state, but that it most likely works to exacerbate it. Viewed correctly, “deflation” is a state of the economy in which active money is short, even while idle money is abundant. In other words, it is a state of radical “liquidity trap” such as the one in which the United States has been caught since 2009, and which, as Professor R. Pollin (U of Mass) and others have duly confirmed, is indicative of the fact that the state of deflation has worsened. For, the method of infusing “liquidity” into the capital market by the central bank’s repeated purchase in it of debts of all kinds under the name of QE only increases the stock of idle balances available only for speculation, and does not in the least increase the money supply (i.e., the supply of specifically active credit money). If the central bank delivers base money (F1) to the banking system for credit creation, then the latter (consisting of depository institutions such as commercial banks) refuses to use it for the intended purpose of increasing loans. Commercial banks and other depository institutions will, for very good reason, refuse to employ the newly created reserve money to extend more loans, since under deflation there is always a high risk that the loans thus extended will eventually turn irrecoverable. Therefore, they either hoard excess reserves or “invest” them in liquid securities, bringing down the rates of interest further only to exacerbate the state of liquidity trap. If the central bank buys securities from the open market rather than directly from the banking system, the result will be the same, it only provides unusable (and hence unsound) liquidity with the system, i.e., it only adds to the stock of idle money in the system which can only be used for speculation. The problem, however, is that excess liquidity within domestic capital markets will easily flow beyond national boundaries, and will eventually find its way into dubious tax havens, where it will be accumulated “underground” as a sinister stock of anonymous and footloose funds of huge magnitude (now sometimes estimated to exceed $US 7 trillion) ready to come back to wreak devastating havoc upon the “civilized” world, as it did at the time of the “Asian monetary crisis” towards the end of the 1990s. More recently, the Bank of Japan too decided to launch the so-called QE of “new dimension”, by doubling the country’s monetary base from ¥135 trillion ($US 1.23 trillion) to ¥270 trillion in two years, having at long last realized that BJ’s immoderate skimpiness in strict observance of its archaic “code of conservative behaviour” (inherited doubtless from the days of the vanishing gold standard in the 1920s) had served to damage the nation’s economy practically beyond repair in the past two decades and more. But this radical change only rendered the Japanese monetary policy more like the one in America, so that its effect will be limited to rescuing the yen from its unwarranted appreciation relative to the U.S. dollar.

Clearly, the monetary policy of the central bank by itself cannot generate the active money that is needed to galvanize the economy out of deflation. When the private sector of the economy has saved money (in the form of idle money) which it cannot transform into investment (and which it cannot, therefore, use as active money), there arises a deficit in the aggregate spending of the nation (I – S < 0), which must be covered by a compensatory spending over revenues by the government sector (G –T > 0), in order for the national economy to approach full employment. This is the idea of fiscal policy by deficit finance that was introduced by Keynes in the 1930s, because, in the age of Fordism, the self-recovering power of the capitalist crisis is no longer available, meaning that, once the private sector of the economy begins to flag, it will not correct itself automatically even over a considerable span of time, since the key prices do not fall so as to induce innovations in strategic industries, and thus eventually resetting society’s reproduction-process on a new value basis. It is for that reason that the “mixed economy” became the common practice in the Western world after the 1940s. Keynes who frequently visited the United States in his last days, however, must have realized that the Americans would not be so readily receptive to the idea of a fiscal deficit even as a policy tool, since it is morally repugnant to the time-honoured tradition of “fiscal conservatism”. Maybe it is in this connection that he took more than a casual interest in Abba P. Lerner’s idea of “functional finance”. For the point of that idea lies in that, in order for the government sector to spend more than its tax revenues so as to run a fiscal deficit (GT > 0), the latter can be financed either by borrowing already existing private money or by creating new fiat money. To my mind, it was this second alternative that must have caught Keynes’ attention, though, to my knowledge, there is no clear evidence to that effect.

In the meantime, both Lerner and the Keynesians who adhered to the doctrine of functional finance thought, in the first instance, that fiscal deficits were needed to compensate for only the private sector’s cyclical failure to invest as much as it saved (to spend as much as it earned) in the period of recession. It, therefore, implied that, in subsequent times of prosperity, when the private sector tended to overinvest (to invest more than it saved), the government sector should adhere to a policy of fiscal surplus to cool off the heat. In other words, functional finance was more acceptable when it is thought to be an essentially anti-cyclical policy instrument, based on the assumption that in the long run both I – S = 0 and G – T = 0. The criticism of Keynesian fiscal policy by J. M. Buchanan and others is therefore based on this understanding, when they pointed out that fiscal deficits may not be so nicely offset by subsequent fiscal surpluses for “political” reasons, so that fiscal debts may well keep accumulating indefinitely, contrary to Lerner’s expectation that it will soon reach a “natural limit”. Indeed, according to Buchanan and others, politicians tend to appeal to the electorate with a sweet promise of more “federal assistance” in order to court its favour and reinforce their popular support. When they are elected, they tend to work (for example, in the U.S. Congress) to legislate such assistance into the form of (federal) government programmes on a permanent basis, which will then require annual budgetary spending in future, so that the election-based democratic politics tend to inflate the federal budget and its deficit permanently. This view appeared quite convincing, as well as appealing to conservative minds. That, however, need not be the only reason for the continual growth of the government sector.

The reason why fiscal deficit does not reach its “natural limit” so soon and easily as Lerner and others expected may be attributable to reasons quite other than the nature of democratic, electoral politics. For contemporary society itself must have evolved in such a way as to expand the need for administrative works that tend to be reserved for the government sector (since it cannot always be so easily “privatized”). As human society becomes increasingly dependent on advanced technology, it becomes more sophisticated, complex, “knowledge-intensive” and even senescent, and the scope of routine government services will naturally expand (especially in such fields as education and communication, hygiene and health care, welfare assistance to the needy, whether in their software or hardware varieties, the expenditures on which increasingly presuppose permanently instituted and growing governmental programmes). This is the issue that the government sector of the welfare state must face over the long run. Yet bourgeois economics has carefully avoided probing into this matter for fear of irking and irritating its sponsoring patrons, whose anachronistic view is that the old capitalism of the previous century can still be reproducible today. For, neo-conservatism (which repudiates industrial peace, the welfare expenditures of the state and the whole concept of the “mixed economy”) and casino capital (which tends to act more globally than nationally, preferring deflation to inflation and wishing the national budget to be as small as possible) do not want to hear of that. They both prefer “small government”, that is to say, government with a small budget, which is always short of tax revenues and which therefore tends to over-borrow private money to its ruin. As the government borrows regularly, the requirement of its debt-servicing will occupy a progressively larger proportion of the national budget, reducing further the room for the provision of indispensable public services. This vicious circle will end in a massive indebtedness of the (central and federal) state, making it an easy prey for casino capital’s assaults. Aware of it or not, bourgeois economics today is irrevocably disabled to offer any effective macro-policy solution to salvage the national economy from the mire of ever deepening deflation. All they can do is to sound the alarm of an imminent “crisis of public finance and of sovereign debt”, and to call invariably for decisive “austerity” in the national budget.

The crises of public finance, however, can in no way be remedied by the austerity policies so widely recommended and blindly pursued in the world. That practice will only aggravate deflation with more unemployment and destruction of incomes, to the extent of rendering highly suspect even the reproduction of labour-power, which any society must first ensure to be viable. Surely there are better ways of restoring the soundness in public finances than by taxing the general consumers more, even though that is mostly what “austerity” generally implies. There are other ways of increasing national revenues. For instance, large Japanese corporations today are known to have accumulated by now a huge sum of about \260 trillion as “internal reserves”, which is well over half the value of the nation’s GDP. This is a huge pool of past savings by corporate businesses, which have so far failed to be invested. Most, if not all, of it can be taxed by the (central) state for fiscal spending without any harm or “austerity” to the economy. The “fiscal crisis” so widely lamented for meretricious reasons could then be solved overnight, if only there were a political will to tax those who are most capable of bearing the burden of fiscal responsibility. For those who hold their savings semi- permanently in the unproductive form of idle money are, in effect, “robbing society of its potential resources available for more adequate welfare of society”. For, they are debarring the latter from producing that which it can produce without pain. This somewhat old-fashioned rhetoric à la Proudhon is only another way to rephrase Keynes’ “euthanasia of the rentiers”. Both it is precisely that same message which has been repulsed by the most untimely revival of casino capital.

8d) What can we do then to liberate ourselves from the tyranny of casino capital?

The above discussion suggests that casino capital has by now created a perfectly comfortable environment in which to ensconce itself. The world economy has for some time been deflationary and that has already begun to hurt a great many individuals and productive enterprises. When the government of a major nation resorts to the policy of indiscriminately pouring “liquidity” into the financial market in a form that can be used only for speculation, it merely aggravates deflation. If the monetary policy of the central bank thus fails, so does the fiscal policy of the (central) government, for it cannot borrow indefinitely and is thus eventually compelled to enforce austerity. That, in turn, will further exacerbate deflation, by destroying more incomes and employment. In this way, conventional macro-economics is cornered, and is thoroughly bankrupt. The reason for this is that bourgeois economics has been taken hostage, or co-opted, by the ideologies of neo-conservatism and casino capital, and cannot think beyond them. In recent times, bourgeois economists, many of whom are Nobel-prize laureates and so vainly (that is to say, with unbelievable conceit) called “geniuses” among themselves, continue to talk inanities with increasing prolixity, without being able to offer any convincing solution at all, while leaving ordinary people who are uninformed of economics completely baffled as society totters on the brink of a freefall to chaos. Bourgeois economics cannot guide them to real solution because it will not and cannot say or do anything that will irk or irritate casino capital which sponsors it. Actually, however, a viable solution has already been shown above. In order to break loose from this apparent impasse, all we need to do is to go beyond the conventional wisdom of bourgeois economics, and start with the distinction between active money that buys commodities and idle money that, short of being converted into real capital, can only be used for money games. In the present context, all we must do is to transform “idle money” into “active money”, i.e., the means of speculation into that of circulation so as to extricate ourselves from deflation. That, however, cannot be done without financing a massive fiscal deficit by creating (or printing) new fiat money, i.e., without using F2 as fiscal resources, as Lerner and others taught many years ago with Keynes’ tacit approval, instead of just borrowing more money from the private sector,.

Under the gold standard system, the government’s account with the central bank into which tax money could be deposited was rather small and so could be ignored, since the working of the automatic mechanism of the law of value, as it regulated the supply of monetary and non-monetary gold, could always be counted upon. The fiat money system was introduced, when that mechanism had begun to malfunction due to the increasing disintegration of capitalism. Yet, as long as commodity production continues to occupy an important part of our real economic life, an adequate supply of active money (which circulates commodities by purchasing them) cannot be neglected. The fiat money system must supply enough F2, if and when the supply of F1 does not lead to the sufficient creation of credit-money (which is active) by the banking system. When a state of deflation has lasted for some time, unemployment and the destruction of incomes must already have proceeded quite far, so as to depress aggregate spending in the private sector. Whereas a further supply of F1 then remains not only ineffective and useless but also counter-productive, as has been shown above, the monetary authorities of the nation under the managed currency (i.e., fiat standard) system can and must supply as much F2 as is needed, without adding to the nation’s indebtedness in the slightest. Will it then cause hyper-inflation? It is most unlikely. Of course, if the policy makers are not to be trusted at all, any unanticipated tragedy is possible. If so, however, why should one trust them in other contexts such, for instance, as setting an “inflation target”, which they will certainly ignore when that limit is reached? If signs of inflation becomes apparent, as unemployment disappears and deflation is overcome, we only need to follow the elementary rule of functional finance to, e.g., double, triple or even quadruple, if need be, the rate of GST, VAT or SZ (shôhi-zei or the Japanese tax on general consumption) to stifle overspending in the private sector. We may even pledge a most radical anti-inflationary measure by legislating it in advance. That is the moment when the “over-indebtedness” of national finance can be repaired without hurting anyone in particular. Bourgeois economists and their supporters cry wolf when no sign of inflation is in sight, while they are unprepared to take a decisive step when it does appear.

It is, moreover, important to understand that this rather “unconventional” method is the only effective one available whereby we can set ourselves free from the present stalemate of deflation under the grip of casino capital. The right method is to create fiat money, not as base money in the form F1 to suffuse the banking system with unnecessary and risky liquidity, but instead in the form of F2 as fiscally spendable active money, which when spent can create incomes and employment. In other words, this method aims at providing the government with active money to spend massively as its fiscal resources, instead of building the stock of more idle money to serve the interests of casino capital. This remedy is far from my own invention; it has been known all along. As mentioned repeatedly, Lerner’s theory of functional finance, which should have caught Keynes’ attention, has always taught that there are two ways in which the fiscal deficit can be financed: either by borrowing more money from the private sector or by printing new fiat money to spend fiscally. [“Printing money” here is, of course, only a more graphic, short-hand expression for creating F2 electronically in the central government’s account with the central bank, instead of doing the same thing with F1 in the banking system’s account at the central bank.] The former method of borrowing increases the stock of the government’s debt, whereas the latter method of directly creating money does not. Bourgeois economics, even though it has known this possibility all along, wants to forget about the second alternative because it does not wish to displease casino capital. I would promote the latter method all the more vigorously because it will hit casino capital directly at its lifeline. By infusing active instead of idle money into the system, this method will stop granting to casino capital the wherewithal upon which to survive, namely, its means of speculation that enable it to exacerbate deflation. As the economy begins to control deflation, more idle money will be destroyed by its being converted into real capital, and that will restrict further the scope of the activity of casino capital, by cutting back further on the idle money or resources for it to feed on. One of the reasons why this obvious option has been overlooked may be that it offends the conventional view of macro policies, which has claimed that fiscal policy has to do with the IS-curve, while monetary policy has to do with the LM-curve, where these two curves are supposed to be mutually independent. This view, however, reflects the neoclassical dichotomy of the real and the monetary economy, from which follows the anachronistic view that the central bank should be in charge of monetary policy aimed only at the stability of the price level, while remaining as far as possible independent from the Treasury, which should exclusively look after fiscal and budgetary matters. Such a complacent view of the happy division of labour between the fiscal and the monetary authorities only serves to make bourgeois economics even blinder to the readily available method of functional finance. Proper macro-economic studies can begin only by overstepping these confines.

On the other hand, the method suggested here combines monetary and fiscal policy correctly in order to create active (instead of idle) money to boost economic activity in the private sector. For, unlike F1, all the fiat money created as F2, by virtue of the seigniorage right of the sovereign state under the fiat money standard, cannot be used otherwise than by being spent as active money,and most of which will also be spent by those who have received it, creating incomes and employment in the process. To the extent that F2 activates the circulation of commodities, it will boost the private economy and will increase its production and investment. The economy which has been depressed under deflation will be reactivated as more workers are employed and as more incomes are earned. From the point of view of functional finance, however, there is no particular way in which the fiscal money created by fiat, F2, should be spent. If it is simply distributed as free bonuses to all citizens of modest means, it will act as genuine “helicopter money”; but it can also be targeted to strategic industries that are particularly promising to lead the growth of the national economy. Alternatively, there may be particular regions which have been devastated by natural calamities and in need of urgent assistance for rehabilitation. Fiscal policies always require a council of wise, disinterested persons to determine the national priorities, as Alvin Hansen once remarked. It is, of course, not so easy to select impartial and unbiased members of the council, and they must, as far as possible, be independent of the sectional interests and disconnected from political and monetary powers. But, regardless of how F2 is spent as fiscal expenditure (especially in a durable fashion for some time through an established welfare or educational programme) from the nation’s budget, it cannot remain without macro-economic effects on the economy in the direction of combating deflation, i.e., in the direction of stimulating more spending by the private sector, which includes the conversion of idle money into real investment (especially since under protracted deflation, unit labour costs must be declining rather than increasing). Casino capital, which uses bourgeois economics as its agent, is the only sectional interest dead against seeing this solution applied; for, that is the only way certain to stifle its speculative activity in the end.

One should realize the urgency of this therapy. For, the more we procrastinate and fail to block further evils that casino capital is capable of doing to us all, the greater the peril to human civilization. There are already signs of social and political disruptions throughout the world, which cannot be lightly overlooked. For, if there is one thing that can be learned from history, it is that no society can survive long if its economic base (or substructure) is in disorder (irrational to the extent of being self-destructive). That is to say, if the substructure of modern society rots (for instance, in such a way as not to be able to reproduce its labour-power) its superstructure too will collapse in due course (for instance by becoming incapable of controlling rampant crimes). It will only be a matter of time, before the whole society will perish. Capitalism has been in disintegration ever since the end of the war of 1914. It has failed for a century to work out a new stage of its development, in which a new dominant form of capital could be found, the autonomous accumulation of which would have ensured a continued production of surplus value, and hence the revival and continued survival of capitalism. Today, under the sway of casino capital that works even against capitalist rationality itself, “accumulation” no longer implies the production of more surplus value but has become totally irrational, and threatens not only the remnants of capitalism but also human society itself. We must, therefore, begin to look beyond a dying capitalism. Thus, the solution to the present crisis of the world economy cannot just be a rehabilitation of a more “civilized” form of capitalism; it must be a definitive departure from it and a step towards a new historical society in which capitalism itself is to be resolved (aufgehoben).

[(9) Prior to dealing with the question of socialism, tell us more about the “welfare state” which you believe has replaced the “bourgeois state” after WWII in the West, and has come to be regarded as the model of the nation-state. How should the welfare state develop from now on? Will it soon perish in the wake of globalization, or will it constitute the first step towards a genuine socialism that will eventually supplant capitalism?

9a) What, in your view, is going to happen during that chaotic period when capitalism has definitively ended its life and the advent of genuine socialism is still to come?

Although in theory capitalism does not logically presuppose a nation-state, its historical existence requires a bourgeois nation-state in practice. That bourgeois state, for its part, could not survive under the Cold War following WWII and had to be replaced by the “welfare state”. It meant that capitalism began its irreversible disintegration. For, the welfare state presupposes “industrial peace” and the “mixed economy”, where the latter in particular implies that the private sector alone cannot secure the national economy against possible slides into a bottomless deflation, so that even in peace time a sizable (central or federal) government sector must always be present. The habitual spending deficit of the private sector, I – S < 0, must be compensated for by a spending surplus, GT > 0, of the government sector not just cyclically but on a constant and permanent basis. Of course, the proportion between the two sectors can vary cyclically, in such a way that, when the private economy flourishes, the economic activity of the government sector may be relatively subdued, and when the private sector is in recession, the government sector is likely to be more active. In that way the government sector can still play the role of an anti-cyclical stabilizer. However, its role in the national economy is not limited to that alone. In the immediate post-WWII years the proportion G / GDE was already raised to around 20% more or less constantly in the United States, something that was unheard of before the war. I will not be surprised to find that the appropriate proportion of G in GDE today would exceed 30% due to the increasing sophistication of contemporary society, since that trend seems to be irreversible. The only proviso may, however, be that this trend is militated against by the anachronistic hankering for a latter-day version of the “night-watchman state”, given that it never ceases to enchant the aberrant believers of libertarianism. Obviously, our society today is quite unlike that in pre-WWII years. It is much more advanced, complex, sophisticated and knowledge-intensive, beside being senescent, so that it cannot be properly operated, administered or even just maintained, unless the government sector spends massively on manpower and its material supports in such national systems as the ones that organize child-raising and education, communications and transportation, the provision and maintenance of public utilities, as well as in such agencies as would judiciously allocate social welfare assistance to those who are in need of rescue, and as must carefully mediate a variety of disputes in industrial relations. Minsky’s “Big Government”, the cornerstone of the welfare state, is thus a sine qua non on a permanent basis. This conclusion appears to be the exact opposite of what is falsely claimed, propagated and is widely made-believe, by the diligent mouth-pieces of neo-conservatism and casino capital.

I am, however, not arguing here that we can simply return without due soul-searching to the golden age of Keynesian social democracy, which appeared to work well in the 1950s and 1960s but which failed in the 1970s. In retrospect, it was both a success and a failure for a variety of contingent reasons, and we have not as yet sorted the matter out so as to fully comprehend its true nature, which I believe we must now do. First, this era represented the age of the managerial revolution and of the empowerment of organized labour. Under the climate of the Cold War, the coalition of industrial managers and unionized labour may be viewed as being the most plausible approach to successfully operating the “mixed economy”, given that so long as unit labour costs in the leading products were declining under the beneficial effect of “petrolification”, by which I mean the expanded and increasing use of petroleum as both industrial fuel and raw materials. But, when caught suddenly by the cost-push inflation which elevated the prices of food, energy (especially oil) and labour, the fragility of the economic system which was then backing up the newly adopted “welfare state” became all too apparent. The decade-long “stagflation” in the 1970s, which then appeared almost out of control led to the revival of libertarianism. At that point, the bureaucratic regulation of industry and the perceived rapacity of unionized labour were thought to be primarily responsible for the slowdown of the economy. Indeed, neo-conservatism as it was represented by Reaganomics and Thatcherism first aimed at “de-regulating” industry and depriving organized labour of its excessive clout, to successfully stop the upward trend in unit labour costs. In the context of stagflation and declining U.S. competitiveness, this may have been to some extent warranted. But its haphazard implementation was not based on any sound and reasoned study of the current situation, but rather represented blind patchworks or botch-ups to cater to the urgencies of the problems, the nature of which was hardly understood. No one could fully grasp the issues that the welfare state and the mixed economy involved. This gave the false impression that Keynesian economics had become “obsolete” in its entirety, and that the “liberalization” of the economy along the lines of von Mises, Hayek and Friedman had rather to be promoted. It also gave the misleading and false impression that monetarism and supply-side economics could successfully subdue stagflation, and rehabilitate the classical capitalism of the liberal age. In the meantime, the weakening of the Soviet regime nearing its collapse, also inspired the false notion that the postwar pursuit of industrial peace and social democracy had both been unnecessary and misguided. What happened then was that “monetarism”, while subduing inflation, unwittingly paved the way for the so-called “liberalization of finance”, which, in turn, led to the rehabilitation and ascendancy of casino capital, putting an end to the “managerial revolution”, inasmuch as the control of corporate firms was then duly returned from the hands of the industrial managers to those of the shareholders and their financial advisors (now called “fund managers”). Many large corporations were already becoming “multi-national” in the 1970s, but that trend was greatly reinforced in the late 1980s, especially with the winding down of the Cold War. When the latter drew to a close at the end of the decade, the new U.S. strategy of “globalization” became official and irrevocable, as powerful firms felt impelled to venture beyond national borders and to compete in global markets. They also felt simultaneously that the cost of welfare state in this new context was far too onerous to be borne. With these changes, it was inevitable that the public finance of all major nation-states would face a major crisis sooner or later.

Traditionally, the bourgeois nation-state depended on customs and excise for its revenue. Sometimes, it also collected land-tax. Although there were some early instances of levying personal income tax, it was not until the emergence of the welfare state that personal and corporate income taxes became the major sources of revenue of the sovereign state. Of all tax payers, the large corporations are the most capable of bearing the fiscal burden, while personal income tax can be made “progressive” in one way or another, and also the personal income from work and that from property can be divided into distinct categories with different tax rates. Therefore, the redistributive function of the welfare state is best served by a properly designed system of income taxation in financing the budget of the nation-state. But, when industrial and financial firms go multi-national or global, the incomes of corporations and wealthy investors can most easily evade the burden of tax payment. The extensive network of “tax havens” that exists today bears witness to this unavoidable trap. In the meantime, all nations compete one with another in lowering the rate of corporate income tax, so as to create a more favorable business climate at home than elsewhere. Consequently, all major nations have been obliged to shift their emphasis from income tax, corporate and personal, to GST, VAT and SZ (shôhi-zei or the Japanese tax on general consumption) as the main sources of fiscal revenues. But this kind of tax, while easy to collect, is quite “regressive” and has adverse effects on aggregate expenditure on consumption. That is why the national budgets of major nations are almost always in chronic deficit today, which cannot be easily corrected. The welfare state, as a nation-state, thus appears to have been made fiscally impossible. What is important here is to understand that this is the inevitable consequence of anachronistic capitalist ideology, blindly campaigned for by neo-conservatism and casino capital, until it has become enshrined as a universally accepted faith. The neo-conservatives believe that “small government” activates the private sector. In some limited contexts that may indeed be the case. But it is not generally and always so, most certainly not to the extent of impoverishing the welfare state to a fiscal paralysis. Casino capital wants the globalization of economic activities, but is averse to the elimination of tax havens. What these ideologies promote is the notion that the nation-state ought to guarantee complete freedom in the pursuit of private gains (for those capable of that pursuit) at the expense of society, that is to say, while denying any right for society (which does not seek to run after filthy lucre) to exist. But that, in effect, amounts to the denial of the nation-state itself, bourgeois or welfare. Thus, the apparent victory of neo-conservatism and casino capital which dream of restoring the good-old capitalism of the 19th century, by systematically impoverishing the welfare state over the past three decades, has ended by demolishing the nation-state itself, including the bourgeois state which always provided capitalism with its necessary carapace. It is precisely for that reason that casino capital fails to become the dominant form of capital in any developmental stage of capitalism. It accumulates best in the global perspective, denying its dependence on the welfare state. In this way, it departs from the nation-state, and thus fails to further “develop” capitalism as the dominant form of accumulation.

9b) What, in your view, is the role of public finance in the welfare state? Can you elaborate on it? Do you think that a welfare state is a fiscally viable proposition after all?

The fiscal crisis that is universally deplored today has not been caused by any profligacy on the part of the past welfare state, the responsibility of which has been to spend more than it receives so as to secure and protect society. An illusion may have been created, however, by the mouthpieces of neo-conservatism and casino capital, which are ready to exploit the intellectual blindness of “fiscal conservatism”, a rather antiquated doctrine. In the above, I have already claimed that, under the fiat money standard, any fiscal spending can be financed by the sovereign state’s prerogative to create new fiat money as F2 rather than as F1. In other words, under the present monetary system, there is, in principle, no such thing as a fiscal crisis. Just as the government of the sovereign state can create F1in the commercial banks’ deposit accounts at the Central Bank by fiat (decree), so can it as easily create F2 in its own account at the Central Bank. That argument always stands. In order to expunge any lingering doubt from your mind, I wish to argue that if otherwise the welfare state would be impossible. For the welfare state adopts the “mixed economy” because the private sector alone, with its chronic tendency to under-spend, I – S < 0, fails to enable the national economy to achieve full employment, unless its chronic deficit in spending is compensated for by the chronic tendency to over-spend, G – T > 0, of the government sector, where “chronic” means “over any number of years”. But if, under these circumstances, the government sector keeps financing its “budget deficit” (i.e., spending more than annual revenues) by borrowing private money from the market, the GDP ratio of the government’s outstanding debt cannot remain finite, and so must of necessity eventually surpass the EU’s, or any other arbitrarily dictated or pre-determined, allowable limit. Hence, under the mixed economy which characterizes the welfare state, the utilization of F2 as fiscal resources can NEVER be avoided whether one likes it or not. The proof of this theorem must be “obvious”. In other words, the very existence of the welfare state and the mixed economy requires by itself the monetary system based on fiat (not on gold or any other commodity) standard, which has accepted the prerogative (or seigniorage right) of the sovereign state to create not only F1 but also F2.

The above argument notwithstanding, I do not necessarily mean to say that T 0 in GT > 0 over time, where T is tax or tax-like, regular and periodic revenues of the government sector, as a permanent feature of the welfare state. In fact, the welfare state too ought to have a large enough regular tax or tax-like revenues (especially from out of corporate incomes), T > 0, of a significant magnitude in order to adequately stress its redistributive function. For the welfare state naturally implies the idea of “mutual help” in community and society, whereby those with stronger income-earning power should subsidize those who earn less to ensure social harmony. I have already described the circumstances under which the welfare state evolved after the end of WWII in Anglo-America, with the Cold War intensifying in the background. Earlier, of course, there had been active debates on the possibility of such a state in opposition to the existing bourgeois state, as Fabianism and social-democracy increasingly caught the attention of intellectuals and activists in Europe. But it was only after WWII that Anglo-America, which constituted the centre of the Western economies, adopted deliberately and definitively the “welfare state” in place of the conventional “bourgeois state”, under the direct influence of the New Deal and Keynesian economics. Although the bourgeois state always provided a carapace for the evolution of real capitalism with a view to promoting “industrialization on the national scale”, its role was always limited to setting the theatre stage upon which the dominant form of capital could accumulate most effectively and efficiently. In contrast, the welfare state was always envisaged in some sense as a “mediator” between the capitalist market and society. In other words, the search for the welfare state, or social-democracy, implied that the capitalist market was not to be fully entrusted to settle all the economic problems of society. The extreme case of “not entirely depending on the capitalist market” would of course be the adoption of a hundred-percent “economic planning by the state”. But, under the Cold War, that option was excluded from the beginning. Even now, it is much too early and rash to adopt that kind of option, the reason for which will become apparent below. Thus, behind the search for the welfare state in the West after WWII, there was the idea that, if commodity production still continued largely depending on the free market, the latter was not, and could (or should) not be, fully self-regulating. In some ways, Karl Polanyi’s idea of the “protection of society from the self-regulating market” may also be viewed as echoing the timely call for the welfare state in this sense. That premise, moreover, was well justified in the age of Fordism, inasmuch as the latter implied a failure of price flexibility at the most crucial juncture, as has already been explained above. When the leading industries were no longer producing coal, iron and steel, but more sophisticated engineering products such as automobiles, aeroplanes, elevators and oilrigs, a sudden contraction of demand for such commodities did not lead to a fall in their prices, but instead to a reduced physical scale of their production, which then did not automatically stimulate technological innovations in the leading industries to enable a recovery of the economy from depression.

The failure of this mechanism, however, implies a serious departure from the “actual process of capitalist accumulation” through business cycles, as explained by the dialectic of capital. In particular, the reproduction-process of society fails to be re-launched on a new technological basis upon which to realize a new sub-phase of “average activity” (between the sub-phases of “recovery” and of “over-heating”) in the ensuing phase of prosperity. Since it is only during that sub-phase that the demand for and the supply of labour-power tend to be equalized, the failure of the economy to pass through that crucial sub-phase implies that, in that economy, the value of labour-power can no longer be determined capitalist-rationally. Put otherwise, it means that the market can no longer by itself ensure the reproduction of labour-power as a commodity that ultimately sustains a capitalist society. I have so far been talking about the “disintegration of capitalism” precisely for this reason, not as mere private rhetoric based on casual impressions. When the centre of commodity production shifted from Europe to the United States after WWI, Fordism soon became its predominant mode, and that convinced Keynes, Kalecki, Takumi, Minsky and many others that price flexibility fails at this crucial juncture in capitalism. That compelled the more enlightened to search for a new context within which the market and society might coexist in a mutually accommodating fashion. That context was the “welfare state” which required the “mixed economy” on a permanent basis. Hence there arises the need for a sufficiently large government sector, which together with the private sector must stabilize the national economy at a point near full employment. But the role of the government sector is not limited to being merely subsidiary to the private sector, when the latter flags. For, there will be a steady trend for the private sector to save more than it invests, S I > 0, or to earn more than it spends, due to the fact that its spending is necessarily constrained by the expected profitability of (or investment opportunities for) the enterprise as perceived by itself. The ensuing deficit in the aggregate spending of the private sector must be compensated for by the excess of spending over revenues of the government sector, GT > 0, since the government sector can and must spend where there are needs (e.g., urgently to rescue and to rehabilitate a disaster-stricken area on the national territory), regardless of considerations over profitability. Where the private sector needs “animal spirits” to spend, the government sector needs nothing of the sort to do so. In the Fordist economy with attendant Minskyan features, the government sector tends to spend more than its revenue, even where the private sector cannot do so. In fact, there is no need for either sector to separately seek to achieve a balance between its spending and earning even in the long run. What is needed is that the two sectors together should spend as much as they receive in the long run, I + G = S + T, in order maintain full employment, while keeping deflation at bay. This renders more than anything else the “mixed economy” as a permanent feature of all nations in the world economy today, as they are all caught up in the process of disintegration of capitalism.

Given the circumstances, what is to be expected of the welfare state is quite obvious. It is to strike an appropriate balance between the market and society. (Here, the word “society” is being used in the sense of “that part of society which exceeds the regulation by the market”). That, however, will mean that the economic base of society can no longer be autonomously and exclusively managed by the impersonal (or anonymous) market forces. The ideological superstructure of society is willy-nilly involved via the state in the management of its economic substructure. What makes capitalism special is that there is no sign of that involvement on a logical plane, even though in reality the power of the state had to be invoked from time to time in extraordinary circumstances, such as war or natural disaster, to settle capital-versus-labour relations. In the welfare state, however, money wages and other working conditions cannot be determined in the labour market alone anonymously as a reflection of the value of labour-power. It is through the exercise of collective bargaining between unions and the management that money wages and other working conditions must be negotiated, where the rules of negotiation are governed by laws, and the state is responsible as the third party mediator for ensuring the conformity to laws and rules of each of the negotiations pertaining to the reproduction of labour-power. The problem, however, is that the first experience in the operation of this new mechanism in the immediate post-WWII period of Keynesian social democracy was not an unqualified success. Rather, on the contrary, it frequently turned out to be a sad episode of failure especially in the 1970s. Sometimes it ended in general wave strikes which paralyzed the national economy; sometimes it only added oil to the fire of vicious inflation as a rising trend in unit labour costs could not be stopped. Many unfortunate disruptions that followed the unsatisfactory settlements in collective bargaining led, in the end, to the rejection of the whole system itself, especially by the advocates of neo-conservatism. They called for a rehabilitation of the erstwhile “discipline of the market” which was supposed to ultimately settle disputes between the two negotiating parties, given their belief that, since the state as the supposed third-party mediator of the negotiations was too weak and ineffective, the reinforced capitalist market had to intervene as the only rightful and fair arbiter of conflicting interests. As the prevailing opinion supported them, especially in the belief that an “over-protection of society” killed the natural “incentive to work” on the part of labour, the whole idea of the welfare state was unsound, and thus the practice of collective bargaining at its core was soon reduced to a dead-letter.

9c) How can we reinterpret the strictly theoretical concept of the “value of labour-power” in the present, historical context of disintegrating capitalism? Will that interpretation not clarify the meaning of a welfare state a little more convincingly?

I will begin by answering your second question in the affirmative. The welfare state may be understood as being the basic framework within which “collective bargaining” between employer and employees can be brought to a settlement that is “consensually acceptable as just in society”. Today, after more than thirty years of the neo-conservative counter-revolution, we can more clearly observe the unhappy results of its unwarranted, and unfulfilled, dream of trying to restore the long since departed capitalism of the 19th century. Regardless of its creed, the market in and after the era of Fordism no longer operates in such a way as to correctly, or even reasonably, determine what used to be called the “value of labour-power”. Interpreted in its broad sense, the latter in today’s context should mean: the money wages or salaries proportionate to the working conditions that are both adequate and reasonable for the maintenance and reproduction of the class of working employees, constituting by far the largest majority in society. If the value of labour-power understood in this sense is to be determined in a market in which a Pareto-optimal solution is not guaranteed, chances are that the game-theoretic solution to which the market will tend to settle will most likely be biased to benefit the employers with stronger bargaining power at the expense of the employees with much weaker bargaining power. Indeed, an increasingly larger proportion of the working population today in many “advanced industrial countries” is hired on an irregular basis and paid a pittance, such that many individual employees, even with several works at different places combined, cannot earn enough to support and maintain themselves and their families. Sometimes, that is approvingly called “flexible employment”, but the responsible economist must not overlook in this trend a sure sign of the impending collapse of human society. For, the inevitable consequence of this situation is that such a society will fail to reproduce itself, by not being even capable of maintaining its indispensable class of working employees. Such a society obviously cannot survive very long. It is destined to perish sooner or later, unless industrial relations in it is overhauled before too late. Judging from the news that appears on a daily basis, which only provides further confirmation of this alarming trend, the moribund decomposition of such society will not likely be of a peaceful nature.

Compared with the present-day society, the capitalist society of the liberal age in the 19th century was a much simpler and more primitive one, in which, apart from the capitalists and the landlords who were a very select few, an overwhelmingly large majority of the population consisted of the class of wage-workers, of whom those engaged in productive labour (i.e., directly in the production of use-values) formed the core. Hence “the determination of the value of labour-power” then implied the reproduction cost of the typical factory worker, who could come back tomorrow to his/her workplace “in the same condition as regards health and strength”, with his/her family life being maintained in the normal conditions in the background. Today, in our advanced industrial society, working lives tend to be far more complex. A typical salaried employee in the city or in the country-side may be engaged in productive or unproductive labour in a variety of workplaces for longer or shorter hours, with his/her more or less middle-class family life being in miscellaneous conditions as regards the age composition and health conditions of its component members. The “reproduction of labour-power” in today’s society is thus far more complex, involved and sophisticated a matter than in the 19th century capitalist societies. It is quite obvious that the bourgeois nation-state in the style of the 19th century would not be adequate in accomplishing the tasks just mentioned. That is the reason why the replacement of the bourgeois state by a welfare state became unavoidable in the 20th century. Not only was the concept of the “value of labour-power” simpler under capitalism, but it was also for the most part determined autonomously by the capitalist market. Since the “actual process of capital accumulation” was cyclical, and since a capitalist crisis always possessed a dependable self-recovering-power, a typical depression period lasted only for a few years and was shortly followed by the following prosperity phase of a regularly recurring business cycles that always passed through that crucial sub-phase of “average activity” during which a full employment of labour-power always tended to be achieved. The money wages that were paid near that full employment point automatically reflected the “value of labour-power”. However, since that convenient mechanism is now extinct, together with “capitalism properly so-called”, it devolves on the government of the welfare state to confirm the “norm” of the prevailing living standard and working conditions of the current class of ordinary employees in this society, so as to ensure their maintenance and reproduction in the best possible condition. They should, of course, be fully employed; they should also be satisfied and happy with their respective working environments (that is to say, their work should not be overly exhausting, a drudgery or disutility to be endured, but something satisfying and fulfilling to their lives and conducive to their renewed work-incentives); their family life should also be free from insecurities and fear; their children should be properly raised and educated, and their senior members in retirement should receive adequate pensions and care so as to live out full length of their lives in health. In short, they should be treated as a full member (citizen) of the civilized society.

There is, of course, nothing particularly new in this list of services that the welfare state and social democracy are expected to provide for its citizens with. Immediately after WWII, these were surely in the minds of all those who were engaged in the rebuilding of the postwar world economy. The Cold War narrowed their focus to the Western camp. That, of course, stimulated all the more the enthusiasm for the building of the “democratic” welfare state; for, a non-democratic collectivist state (whether communist, military, despotic or otherwise) does not fall within the category of the “welfare state” under the present discussion. In the 1950s and 1960s, the new orientation appeared to progress quite well under the continued influence of the New Deal and Keynesian economics. It was the cost-push inflation of the 1970s concomitant with the declining economic power of the United States in the world that aborted this trend, and permitted the resurgence of neo-conservatism which, merging soon with revived casino capital, heralded the aberrant age of vain attempt at restoring the old bourgeois state, an anachronism that has left the damaging scourges. As we can see today the result was simply the “exodus of capital (or of capital to be) from the nation-state”, which led not only to the fiscal repudiation of the welfare state, but also to the destruction of the remnants of capitalism and of human society itself. For, as the budgetary austerity, compelled by the made-up fiscal crises, further aggravates the deflationary spiral, more employment and incomes will be destroyed, and the whole population of the working employees will eventually be deprived of its right to reproduce itself.

9d) What are the main problems that you believe may cause potentially a grave threat to the welfare state. How can we face them? Tell us also if you believe that the welfare state should be viewed as the first step towards a more genuine socialism?

The first of the two main problems that may cause a grave threat to the existence of the welfare state, and against which we must be prepared to guard against is the erosion of its fiscal resources, especially the erosion of corporate income tax which constitutes a very important component of the regular revenues of the welfare state. As already pointed out the taxation of profits accruing to large corporations is key to the redistributive function of the welfare state. In the present context of globalization, however, there is a natural tendency for all countries to compete among themselves in lowering the rate of corporate income tax, in hopes of rendering their own territory a more attractive place than elsewhere for a large international corporation to move to and set up its operation. If, for example, the tax rate is reduced from 30% to 20%, the welfare state will lose 10% of its revenue on this tax base, which can amount to quite a substantial loss of fiscal resources, and that will immediately constrain its necessary public spending to that extent. Even though such a loss of fiscal revenue can always be covered by resorting to the seignorage right of the welfare state to “create” the equivalent amount of fiat money (F2), as has already been suggested, it is still useful to consider the method advocated by E.F. Schumacher to circumvent the problem as it pertains to the corporate income tax. Towards the very last pages of his highly valued book, Small is Beautiful, the author proposes that all corporations larger than a certain previously agreed-upon size should be asked to issue “special shares” to the government of the country (or territory) in which they intend to operate. These special shares would have the same rights, both pecuniary and managerial, as any other share of the company, except that under normal circumstances their managerial right would remain “dormant”, whereas their pecuniary right, that is, their right to receive a due proportion of the company’s distributed profit would always remain in force. In this way, the state would automatically collect the equivalent of corporate income tax, without resorting to its power and procedures of ordinary taxation. If 30% of the shares that the company issues are the special ones just mentioned, it is as good as paying the corporate income tax of 30%, though without feeling that 30% of their distributed profits have been levied from them as income tax. Inasmuch as 30% of the company’s shares already issued are “special”, and so their managerial right normally remains “dormant”, the company’s ordinary management is not interfered with by the state. Only when the company acts in a way that is clearly detrimental to the national interest, would the state be entitled to appeal to a special court to have its managerial right of the special shares restored, so as to assert its will.

I believe that this method of circumventing the obvious form of taxation, while achieving the equivalent revenue result is quite wise and judicious. If an international company chooses to operate in a particular country, paying profit tax to the authorities of the place after its commodities are produced and sold, that arrangement will give the impression of delivering to them tribute of a sort from out of the net benefits that the company has already earned and are hence thought rightfully its own. However, the fact is that the company has come to operate in the host country in hopes of benefiting from its well serviced infrastructure, including the quality of the local employees already made available there in the first place. These advantages are available because the host country, as a welfare state, has spent much money over years in order to create and to maintain the high standard in such “social capital”. Issuing the “special shares” as described above to the government of the place in advance as an entrance fee is probably less offensive to the company than being charged après coup a sort of exit fee in the form of a profit tax. Socialists have a lot to learn from this kind of wisdom. For, much of what they propose need not offend the capitalist’s sense of cost-benefit analysis as much as it appears at first sight. Indeed, I would like to describe later how the corporate form (the form of joint-stock company) can be made use of just as advantageously by the welfare state as by a private enterprise in pursuit of profit.

The second problem that the welfare state may have to face, and so must be prepared to deal with properly is the possibility of a cost-push inflation which can arise due to circumstances beyond its control. In the 1970s, the oil crisis that led to “stagflation” turned out to be fatal to the first period of experiment in the welfare state. Something similar to that tragic event can always happen again, and the welfare state cannot afford to remain so defencelessly vulnerable to it. By cost push inflation I mean one caused by the supply shortage of a particular commodity or of a series thereof. In the 1970s, it was originally a shortage in the world market for grains, but their shortage and the consequent rise of their prices soon spread to various other key international primary commodities, of which many were essential industrial materials; and it finally ended in the explosion of crude oil prices orchestrated by the OPEC acting as a cartel. But inflation in food and/or energy products directly affects the cost of living, and will thus entail a significant pressure to raise money wages far beyond the extent to which an increase in labour productivity can absorb it. Since, in most cases, labour is by far the most important constituent of the cost of producing a commodity, a sudden and sustained rise in unit labour costs may, by squeezing profit-rate, result in a powerful curb on production in general. The private sector is particularly vulnerable to such a trend. What then can the welfare state do, if such a situation develops again? There are in principle two ways to combat cost-push inflation in the short run. (1) One is to combine tax-cuts and subsidies in order to dampen the upward pressure in the cost of living of the population. For instance, the energy price is either directly set by the state itself or by its agent (as in the case of electricity), or a substantial portion of the price is made up of tax charges (as in the case of fuel consumed when driving a motor vehicle or otherwise in the household), so that a temporary reduction of the price itself, or at least of the tax component in it, can alleviate the pressure that would lead to rising money wages. (2) The other way is to accelerate the adoption of energy-saving technological innovations such as are likely to enhance the productivity of labour, which can absorb a possible rise in money wages, thus keeping unit labour costs more or less constant. These are both short-term measures that the welfare state can resort to in order to protect itself from the dangers of cost-push inflation. However, in cases where neither of these measures works to contain cost-push inflation, the welfare state must not hesitate to directly control the demand for and the supply of the highly sensitive commodity items, by removing them temporarily from free pricing in the market.

In the long run, however, there are other ways to protect the welfare state from the peril of cost-push inflation. For, usually, the latter becomes serious when it involves either food or energy, since any society is crucially dependent on them. So far as food is concerned, its production is subject to changeable climatic conditions which are, in principle, beyond human forecast and control. That is the reason why they frequently become objects of speculation, causing upheavals and disorder in the ordinary functioning of the market. Sometimes a worldwide shortage of food can occur, threatening the countries that have come to depend on imported food. It is, therefore, necessary for the welfare state to ensure a minimum food security for all its citizens regardless of what happens. A long-run perspective on agriculture and food security of the nation cannot be avoided. Similar considerations apply to energy security. Our lifestyles in most affluent nations today entail an excessive dependence on the energy provided by fossil fuels; and that has had many unfortunate consequences, the oil crises being an especially acute example. In some countries, a huge stockpiling of key fuel items (and their safekeeping) has become necessary to ensure and stabilize their supply, and it is the responsibility of the welfare state to be prepared for such an event. It is, therefore, high time for us to think of overcoming that excessive dependence on oil and other fossil fuels, and seek to diversify our energy sources, especially by exploring new possibilities of the renewable ones? The more we are successful in progressing in that direction, the remoter the chance of another “oil crisis”, a major threat of cost-push inflation, and the more secure the future of the welfare state. Ironically, “petrolification” was viewed as a boon to the welfare state in the beginning; now it is beginning to appear as the first hurdle to overcome. But that should hardly be the reason for us to give up the welfare state. For, it is surely not beyond the technological capabilities of our present society to formulate and to adopt long-term energy policies as free as possible from fossil fuels on a consensually agreed-upon basis, with a view to ensuring its sustainable existence. These considerations compel us to hazard a forecast of our lives in a fairly distant future. But if so, we must in effect probe into the ecological rationality of the welfare state. For, its economy cannot just blindly “grow” only to find the calamity of global warming when it is too late. A responsible welfare state must adjust its economy to the human-scale, by restraining the self-indulgent “animal spirits” of the entrepreneurial or speculative few, which may otherwise lead our society to devastation.

By this time, it has become clear that the welfare state is expected to do far more things than the bourgeois state. Whereas the latter was a minimalist state, in the sense that its job was strictly limited to merely assisting the capitalist market to operate as autonomously as possible, the former is a maximal state in that it has to play a much more active and important role in the organization and stabilization of the society that it nurtures. To that end, it has to involve the ideological superstructure of the society in the management of its economic substructure. Thus, the welfare state is the “mixed economy” with the government sector of a substantial size, the operation of which must be guided by the “collective will” of the people. Needless to say, the closer it represents national “consensus”, the more solid will be the democratic foundation of its operation. For instance, in the settlement of a collective bargaining dispute, the act of the state as the third party arbiter of negotiation will be the more convincing, the more consensually acceptable the method of settlement will be. In the choice of the long-run policies of the nation aimed at ensuring its food and energy security, the same considerations apply. The question then is how the democratic process can generate anything like a “consensus of the nation” in matters that pertain to its economic life. The answer is that it is the more likely to be successful, the more overwhelmingly “middle-class” the society will be, in the sense that the living standards of all citizens are more or less the same. If, in the welfare state, there still remain very rich or very poor families, they must disappear as time passes. For, otherwise, it will not be a welfare state. We may, therefore, expect that the welfare state will eventually be an overwhelmingly middle-class state, of which the democratically expressed majority opinion represents the collective will in a consensual fashion whenever possible.

(10) You have argued that the long period of ex-capitalist transition (or of the disintegration of capitalism) which began with WWI is now about to end after roughly one hundred years or so, and that signs of a new society which you call “socialism” are beginning to show. Surely, that “socialism” is not the same as that which the same word has always meant in the traditional Marxist literature. The question now is how to let socialism evolve within the framework of the welfare state. For a long time, Marxists believed that “socialism” in the economic sense meant the planning of economic life, especially of the production of use-values, under the command of the state. In other words, to them, the advent of socialism meant the establishment of a national economic planning. It was, however, that sort of simplistic idea of the economy, you seem to believe, that spelled the doom of the Soviet-style experiments in socialism. Explain how so. Your view of socialism as a “historical society that will replace capitalism” seems to be rather different from the conventional one. What are the basic features of socialism and the welfare state that you have in mind?

10a) Should not the economic base of socialist society be regarded as consisting of economic planning by the state, that is, the production of all or most use-values by its command? How should the welfare state evolve to reach such a stage eventually?

Karl Polanyi explains that there have been historically three types (or rather methods) of “integrating” society’s economic activity: reciprocity, redistribution and exchange. Reciprocity here means the reciprocation of giving economic benefits to and from each other, or “mutual aid” in more familiar parlance. Those in a stronger economic position shall aid others in a weaker position as a matter of course. This principle originates perhaps in the simple fact of life that, while being an infant, in old age or a state of infirmity, everyone receives assistance from healthy adults who are robust and fit to work. It reflects the most primitive and biological division of labour within the family or community. It was, therefore, practiced as a matter of course even in the earliest form of human society, still based on primitive hunting and gathering. Redistribution means a centralization of society’s wealth (products) in one place in the first instance, before it is redistributed in various ways to its members. In order for this method to be practiced, civilization had to await the development of agriculture and the consequent formation of ancient empires. Since the annual production of grains through variable weather, while protecting the crop from plundering alien tribes, was a demanding task, the ancient state required a rigidly hierarchical organization of society. It was often so organized that the direct producers at the bottom of the social layers (often consisting of alien slaves) retained only the bare minimum of the products that they produced as deemed necessary and sufficient for their own reproduction, the rest being levied by the state to be redistributed to the more powerful members of society. Although even under the ancient empire its productivity could rise to the extent of generating sufficient surplus products to permit trade either within the empire or beyond it with others in exchange, the ancient trade always remained a peripheral activity and did not by itself develop into the exchange of commodities through the capitalist market. In order for that to happen, the ancient empire had first to be decomposed into smaller feudal states, often by the former’s provincial governors becoming independent lords of the place. Although formally or outwardly they still retained feudal allegiances to the central power in the beginning, they became gradually independent of it and concentrated on local economic development. It was only when these feudal states became rich enough to be able to routinely generate surplus products for trade and exchange “as commodities” that commercial cities began to develop, and the class of the modern bourgeoisie to be formed. At this point, the exchange of commodities no longer remained “peripheral” economic activity. For the modern nation-state was formed by the unification of many feudal mini-states over an extensive territory with the express purpose of promoting industrialization.

The above description shows that the three integration methods of the economy are not normally “mutually exclusive”, although, if one of them is predominant, the other two tend to occupy peripheral positions. Even under capitalism in the modern age, in which the exchange of commodities in the capitalist market is by far the most dominant form of economic integration, the other two, redistribution and reciprocity, are not completely absent. They just occupy subsidiary positions and so remain less visible under normal circumstances, though quite ready to appear on the surface if circumstances that are extraordinary occur (such as wars or natural disasters). There is then no mystery either, if the same rule applies to socialism. The fact that the welfare state has already replaced the bourgeois state suggests that a greater emphasis than before must now be accorded to both reciprocity (mutual aid) and redistribution (often by way of taxes and subsidies). But that does not mean that the exchange of commodities through the market must disappear completely. It only means that the “capitalist” market no longer functions single-handedly so as to ensure even the reproduction of labour-power, and hence that the redistributive function of the state through its public finance must play a major role in that process. The economic activity of the state may also have to be assisted by exchanges in the non-capitalist market and by mutual aid in the community. The question is how the idea of economic planning by the state might relate with Polanyi’s three methods of economic integration?

Economic planning by the state is not included in the three forms of integration of the economy that Polanyi mentions. At one point I tried to interpret it as a special case of redistribution. But that may be rather forced. As I paraphrased above, the historical sense of redistribution has to do with the centralization of the use-values already produced (products) by the power of the state, so as to redistribute them to their consumers, whereas planning has to do with the way in which the use-values will be produced under the supervision of the state. In some ancient empires, it is true, that special tribes endowed with arts and skills in the manufacturing of some specific use-values (pottery goods, iron arms, textiles, dyes and the like) were protected by the despot. But that is hardly economic planning by the state. Thus, if Polanyi’s redistribution is understood in the sense of the division of the use-values “already produced” rather than “to be produced from now on”, the idea of the redistributive function of the welfare state through its public finance will be more apropos. In any case, since redistribution implies in one way or another the application of the power of the state, which is necessarily “extra-economically coercive”, one must be very careful. “From the market to planning” is a slogan that is often understood in the sense of “from anarchy to order”. But the bureaucratic order imposed from the above may well be as despotic as that in the ancient empire or in the modern collectivist state. If, by moving from capitalism to socialism, we merely end by rehabilitating extra-economic coercion of a despotic bureaucracy, the whole exercise will be completely futile, since true socialism would never be achieved in that way. Yet the tragedy of pseudo-socialisms very reminiscent of that elementary misapprehension has recently proliferated.

Take the linear model of production X = (IA)-1Y, where X is a column-vector of economic activities in all branches, Y that of the final demand for the products of all branches, and A the square matrix of input-output coefficients, aij’s. This formula gives the impression that, once the final-demand vector Y is given, the whole of productive activities X of the state is completely planned under the given technology A. But the real difficulty is in determining Y, as the vector of society’s final demands for all use-values in socially necessary and desired quantities, which of course is humanly impossible. If Y is arbitrarily dictated by the bureaucracy, even with the assistance of a high-speed super computer, the system will produce excesses and shortages everywhere with no automatically self-corrective mechanism, only to render the economic life of the nation completely chaotic. It would not be humanly possible to predict the right Y even if the bureaucracy were fully competent, honest and beyond reproach. As it is, bureaucrats are frequently lax and subject to worst corruptions in a context of that sort. The problem arises here, however, because X and Y represent all use-values in the economy which are bound to be in an extremely large number. If the number of use-values in the model is restricted to only a few select, key use-values, however, there is no reason why the same formula cannot be usefully applied to estimate, for instance, what ramifications in the national economy are likely expected, when a given Y is set as a goal to be achieved within several years hence. I am indeed not rejecting the linear model of production itself, but the inordinate expectation of being able to successfully applying it to a humanly impossible task.

At the present stage, an overall planning of the nation’s production of all use-values by means of a simple linear production model is not only utopian but also quixotic. A far more realistic and sensible approach at the present stage would be for the welfare state to mainly resort to its redistributive function primarily through the public finance and in such a way as to correct the biases in income distribution that the exchange of commodities in the market alone is liable to generate inadvertently. By its very nature, the welfare state must always exercise the discretionary power of the state to interfere with the automatic play of the market, when the latter is already known not to lead to a Pareto-optimal solution. It is for that reason that the welfare state is based on the “mixed economy” in which the private and the government sectors must coordinate and cooperate with each other. In this “cooperation”, however, it is not the private sector based on free competition in principle that must take the initiative. There is no reason to believe that the government sector should always play the corrective and accommodating role. It has to have its own long-range visions and plans for the future of society that the welfare state aims at nurturing and achieving. For the market is bound to be myopic and cannot see a distant horizon. In order to ensure the nation’s security in food and energy not only for the present and immediate future, but also for a long time to come, the welfare state must formulate long-range plans with a horizon of at least five, ten or more years ahead. But, in this case, the aim of the welfare state must be based on, and supported by, something close to the national consensus. In view of the above reflections, I must conclude that we do not win socialism overnight or one day by way of a cataclysmic revolution that simply proclaims the abolition of class societies, as it was once widely believed in the 19th century. But we shall rather reach it in the gradual and progressive process of “learning by doing”, within the framework (carapace) of the welfare state. For the latter too aims at a classless society eventually, if not in one fell swoop.

10b) So you believe that socialism should be achieved in the process of “learning by doing” within the framework of the welfare state, rather than by a one-shot revolution aimed at replacing the “chaotic” market with an “orderly” planning. You have also insisted that you do not want a socialism that rehabilitates “extra-economic coercion” to replace the anonymous and impersonal coercion of the capitalist market. What then do you believe are the essential features of socialism?

Socialism must first of all be a sustainable society. Secondly, it must also be a democratic one. I would, therefore, like to discuss these two basic themes hereunder.

So far as the sustainability of society is concerned, we must recognize that this problem originated with the Industrial Revolution that occurred from the end of the 18th to the beginning of the 19th century in Britain. For it has been since that time that both the population of human species and its consumption of energy began to increase exponentially. That fact is now threatening the living environment of this planet together with human society on it. Some early signs of this sinister phenomenon were noticed, when suffocating smog regularly descended over London, Manchester and other advanced industrial cities by the end of the 19th century (drawing the attention of such persons as Stanley Jevons in particular). But so long as the main source of energy that supported industrialization was limited to coal, the pernicious effect of pollution was still largely confined to the industrial areas. After WWII, however, as coal was quickly replaced by petroleum as the main source of energy, and consumed massively not only in industry but also in the daily lives of the billions of people who had become urbanized, the problems of the environment literally “exploded”, whether in the forms of mounting garbage, the pollution of air, soil and water, the squandering and depletion of non renewable natural resources, and in a host of other ways. In the final analysis, it was “industrialization” which cannot occur without damaging the environment in one way or another that created the problem of society’s sustainability. Yet, since the bourgeois state is an apparatus that was designed for the purpose of promoting industrialization, it is inherently incapable of either stopping or restraining it so as to protect society from further degradation of its living environment. It is, therefore, the first task of the welfare state (as distinct from the bourgeois state) to find ways to accommodate industry within the framework of our living environment.

More recently, as the same method of economic development that initially involved only the more advanced countries has been learned by the many “emergent” late-developing nations, the high-speed growth in many of the latter naturally adds fuel to the fire of “global warming”, providing us with the many perfectly visible signs of climatic irregularities, leading unmistakably to some irreparable damage to the earth as we knew it. A global scale human-made disaster that disrupts the living environment that has nurtured us thus can no longer be held at bay, unless we make a radical departure from our present path. Faced with this perilous trend, the United Nations try hard to obtain an international agreement, with a view to curbing further emissions of CO2 and other greenhouse gases, thus to halt the global warming of the earth. But so long as the proposal appears to represent the selfish egotism of the advanced countries, the chances are slim that it will lead us anywhere. Much more effective, however, would be for one or more “advanced” nations to factually demonstrate how industry and the environment can accommodate each other within their own territory, and export their proven wisdom and technologies to their developing followers. But to do so, the economist and the environmentalist must first stop their perpetual quarrel, wherein each insists on pursuing different aims, with the one seeking more consumption of energy to enhance affluence, while the other wants much less of it for cleaner environment. The economist is convinced that affluence in human life requires more combustion of fossil fuels, while the environmentalist believes that the same would be a nemesis to the earth as living environment. Sometimes, the economist goes even so far as to suggest, and that in all seriousness, that nuclear energy would solve the problem since it can circumvent the emission of greenhouse gases in the generation of electricity to the utter horror of the environmentalist, who thinks of the more poisonous nuclear pollution and of the ultimate impossibility of the disposal of radioactive wastes.

The incompatibility of the two conflicting views, one held by the economist and the other by the environmentalist, originates in their different conception of production. The bourgeois economist thinks of production rather casually as a “technical transformation” of a series of inputs into a series of outputs, in just the same way as the exchange of commodities is understood as a “market transformation” of one basket of goods and services into another one of different goods and services. Thus, formally, the technical transformation through production is understood in parallel with the commercial transaction through commodity exchanges in the market. In this way, however, the act of production will be believed to involve only the mechanical process which remains neutral to the natural environment within which it occurs. In reality, however, the act of production that transforms a part of nature into another form that is more convenient and readily adapted for human use and consumption, cannot remain completely neutral. It changes the natural environment by increasing “entropy” in it. If nature is despoiled or damaged by increased entropy, however, it has its own mechanism to cleanse and heal itself over time, and in some cases what we want to do over time can be adapted to the speed of the self-cleansing or self-healing power of nature, though only to a limited extent. In agriculture, for example, land which was planted for several years is laid fallow for a due length of time afterwards in order for it to be able to restore its productivity. This concept of production as “the human cooperation with nature” has been lost in the modern times as the manufacturing of commodities became a predominant feature of human society after the Industrial Revolution. Since economics is a child of the modern age, it may have developed a wrong image of industrial production as being “neutral” to its environment. A student of Uno, Yoshirô Tamanoi (1918 – 1985), who devoted his academic life towards a synthesis of economics and ecology, taught quite correctly that the true model of production in economics should be learned from agriculture rather than from manufacturing. He highly praised the works by Nicholas Geogescu-Rögen (1906 – 1994) in the United States, with whom he shared many similar conclusions. Only by following their lead will the economist and the environmentalist be able to craft a common language, and that surely is something that can be expected only within the welfare state that has replaced the bourgeois state, since industrialization is not the sole concern of the former as it is of the latter. Thus, society’s sustainability in the context of the welfare state is the first-priority question for the economist to face up to. The same considerations apply to the technology policy of the welfare state in connection with its “strategy of growth”. For example, the adoption of a particular technology in industry may be advantageous to a nation in the short run in terms of international competition; yet it may entail harms in the long run to the nation by hurting its environment.


The second question that should concern the welfare state pertains to democracy. For a long time, Marxists have been taught to believe that democracy so far made available to us is only “bourgeois democracy”, which serves and benefits the bourgeoisie to the exclusion of the working class. We must, therefore, seek a “people’s democracy” which applies more widely to all members of society. In fact, however, “people’s democracies” has so far performed miserably under the communist dictatorships, just as the case of the much touted conversion of the “chaotic market” into an “orderly economic planning” did. In both cases, the revolution was easily betrayed by the nomenclatura within the new power structure that duly suffocated democracy. In both cases, it was the failure to properly comprehend capitalism before attempting to replace it with something new that caused the tragedy of the century. It is true that capitalism entered the period of its disintegration after WWI, because the production of commodities entered the new phase of Fordism so that the price of its representative product does not fall even in a crisis. This means a critical dysfunction of the capitalist market in ensuring the viability of capitalism. But that does not, and need not, entirely suspend all of the production of commodities for exchange in the market, so as to let planning completely replace the market. The remaining market can and must be combined with the redistributive function of the welfare state, so as to ensure the reproduction of labour-power in a new way (rather than simply as a commodity). Indeed, this is what fundamentally distinguishes the welfare state from the traditional bourgeois state.

To the extent that the management of the economy thus involves the discretionary power of the state, however, the ideological superstructure of society must necessarily intervene in it, whether in the form of law, politics, ethics, culture, religion or otherwise. The ideological superstructure that we now have, or that is now available to us, is that which we have inherited from the past, especially from our “modern” past. Human beings live with a memory that is far richer and wiser than the one that ordinary animals possess, since humans can recall far more of their past experience than can be stored in their instinct or habit (zoological adaptations to their new environment). Therefore, a person who has lost his/her memory is no longer an ordinary person. Moreover, most collective memory is written and recorded historically and can thus be shared by all. It is that type of memory that is stored in the superstructure of our society that assists and guides us in the operation of the welfare state. It contains the “values” of human rights, individual freedom, democracy, respect for laws, civil society, family life based on monogamy, and the like, even though these “values” may transmute and develop gradually as society creatively evolves in future. It is a folly to blot them out altogether to replace them with a new set of rules arbitrarily prescribed by some utopian (or lunatic) dreamers.

Thus even the bourgeois democracy, which developed in the modern times and has its modernistic limitations, must be carefully preserved and nurtured within the welfare state, so as to develop it further into a “democracy for all”. For, clearly unlike other early instances of democracy, the bourgeois version (based on the equality of all humans) has the potential of universal application. Indeed, if the welfare state, as has been argued, aims at achieving a universally “middle-class” society, that aim is already built in its programme. Indeed, the society that the welfare state nurtures does not need an exceptionally rich or exceptionally poor family. It is not desirable that the income earning power (labour and property incomes combined) of the families should not differ radically within the welfare state. In any case, the disparity between the poorest and the richest must not exceed the ratio of 1 to 10 at most. For otherwise, the income gap between families and individuals will be reflected in different “social values”, so that it will make it difficult to achieve a social consensus in important political decisions. Surely, “democracy for all” need not be despotically prescribed, and be imposed or enforced bureaucratically. It will have to evolve naturally of its own accord and in due course within the framework of the welfare state, so long as its real purpose and meaning are understood by the people. There still remains one thing, however, that cannot be overlooked carelessly. That is the question of controlling bureaucracy. To a great extent the failure of the soviet-like system was attributable to the excessive centralization of power, which made use of an irresponsible “hero worship” on one hand, and of the byzantine bureaucracy to buttress it on the other. The welfare state, too, as a nation-state must exercise the power of “extra-economic coercion”, and more of it surely than the bourgeois state, to the extent that it does not rely on the market, the operation of which is supposed to be anonymous and impersonal (provided, of course, that the anti monopoly legislation is effectively enforced). All the more is it necessary for the people to supervise the exercise of power by the central authorities of the state. The right way of preserving and protecting democracy against the overbearingly centralized power is, it seems to me, to distribute it to local communities where direct participatory democracy is possible.

10c) If, as you say, the welfare state aims at a perfectly “sustainable” society, in which democracy is made more advanced and more equally available to us all, what might be the economic substructure of that (socialist) society look like eventually?

When we think of a new socialist society, we must always think of its economic base (or substructure). Traditionally, Marxists have been taught to believe that socialism will be found as a “green pasture” after an “apocalyptic” end of capitalism, and that, until then, we must not entertain a “utopian” dream of how it might look like in terms of an imaginary “blueprint”, but concentrate rather on the immediate task of rallying under the banner of a few revolutionary leaders. I believe that to be an incorrect as well as irresponsible lesson, which only serves to create heroes of the revolutionary struggle who are bound to become the future despots, as Paulo Freire taught so judiciously many years ago. I believe, on the contrary, that we must always think of “blueprints” of the society that we wish to build in future. Of course, as I have already remarked, we must build the new society realistically with and from what we now have, rather than tabla rasa in an imaginary vacuum, that is, by the method of “learning by doing”. But no new society is possible if its economic base is self-contradictory or inconsistent. The test of consistency, in this case, is to be found in the “circular-flow model”, of which Quesnay’s Tableaux économiques, Marx’s Reproduction-Schemes and the more recent set of National Accounts Identities are the celebrated examples. To represent the economy as a circular-flow model is to show that it can be divided up into several key sectors, the economic activities of which are different but are mutually consistent, so that they can form an annually repeatable whole. Therefore, in principle, we cannot even talk of a socialist society of the future, unless we demonstrate the consistency of the circular flows of its economy. That will constitute in a sense an existential proof of the possibility of such a society. Thus, I would like to begin by outlining such a model.

First, let us divide use-values broadly into two kinds: the quantitative goods (U) and the qualitative goods (F). The first are mainly intermediate producer goods including energy goods, which can be mass produced by large firms, whereas the latter are mainly final consumption goods for use and consumption by individual consumers, and so are unlikely to be mass produced. They are more likely to be produced by small or medium sized, local firms and consumed by the local population. So far as services are concerned, they are either labour-services (L) or land-services (T). Then, let us suppose also that this economy consists of three sectors: the local communities (I), the cities (II), and the large firms (III).

Of these by far the most important is the first sector made up of local communities of « human scale », in which day-to-day economic life of the majority of the population is supposed to take place. By “local community” is meant here a group of people who live together in a given geographical location, and who produce use-values (useful objects) in principle for themselves. Some of these products may, of course, be sold to others, but the purchasers are in the main non-anonymous members of the communities directly or indirectly known to one another. Therefore, they have reason to feel themselves quite responsible for all the effects, positive or negative, which may originate in or derive from both the production and consumption of these products. In other words, they will take pride in the quality of their product as reflected by the consumer’s satisfaction, while they will also refrain from producing anything that might harm or annoy their neighbours in the process. Thus they only produce what I call qualitative goods, which they make with care and pride. These are mostly final consumption goods for use in principle inside the community, not for sale in an anonymous, universal market, though a certain proportion of them may be regularly exported to neighbouring cities and communities. It is difficult to determine the right size for such a community in general terms, but the population of 100,000 – 150,000 individuals (or 20,000 – 30,000 families) may not be too far off the mark. For, a community of that size will not need an elaborate bureaucracy to administer, and can provide a suitable environment for a direct, participatory democracy to flourish, especially if the community makes use of recent progress in ICT. While the local communities concentrate on the production of qualitative goods, the quantitative goods will, in contrast, be produced by large enterprises belonging to the third sector, and operating outside the local communities. These are products that are “standardized” and mass-produced consisting, for the most part, of intermediate producer goods, though not excluding some final consumption goods. They are mostly produced with highly labour-saving methods in automated and robotized factories. It is not necessary to establish a rigid rule in distinguishing between the qualitative and quantitative goods. Most final consumption goods are produced in several stages, where earlier stages are usually viewed as preparatory and later ones finishing. Hence, each community can decide, taking into consideration all the pertinent community-specific factors, at which point it may want to begin the in-community customization of quantitative goods as near production of qualitative goods.

As far as labour-services are concerned, all productive and unproductive labour-services necessary for the production of the qualitative goods must be found inside the local communities, whereas productive and unproductive labour-services needed for the production of quantitative goods by large firms in the third sector should come from the second sector consisting of cities, in which the employees of large firms reside. But labour-services that the residents of the cities provide are not limited to this kind alone. Many advanced-level professionals, administrators, and technicians, whose labour- services are relatively more “knowledge intensive” tend to live in cities (for example, university teachers and students, research doctors, specialized lawyers and engineers, artists with national or international offices and clients), while general level service workers are more likely to prefer to live in communities (school teachers, general practitioners, ordinary lawyers, mechanics and local administrators and officials, etc.). Again there need be no rigid or hierarchical distinctions between those who choose to live in cities and those who would rather stay in communities. In order to ensure that local communities constitute the core of this economy and retain unquestioned primacy, however, I would dictate that they must own severally all the lands that belong to the society, such that all large enterprises and cities must, without exception, arrange to lease the land that they use from some communities and pay them annual rent. Thus all communities will have guaranteed rental incomes in addition to earning some revenues by selling their qualitative goods to cities. But the purpose of investing the communities with landed property is not limited to securing them the purchasing-power of intermediate goods and advanced labour services from other sectors. Leases on land must be renewed at regular intervals, so that every time new terms are negotiated, the communities can exert control over the use of their land. Thus, for instance, if a large factory utilizes an industrial technique that harms the environment, or if a city fails to manage its garbage disposal properly and pollutes the vicinity, the lessor community can exert pressure on the lessee to discontinue the undesirable practices on pain of revocation of some existing privileges.

The transition to this kind of economy, it seems to me, can be easy and gradual, involving no violent revolution, provided that there exists a strong enough political will. If a local community is formed by the free will of the residents and satisfies a set of previously agreed upon conditions, the existing state can declare it a “special zone” and protect it from outside commercial interference, while investing it with certain landed (or financial) properties. The existing large corporations can also be relatively easily converted into providers of quantitative goods to the communities and cities. In each industry, large firms will have to compete among themselves to obtain contracts from communities and other large firms in much the same way as they have so far been doing. Since they cannot directly sell to individuals, however, there will no longer be the repugnant consumer exploitation and the irresponsible marketing of hazardous commodities. It will no longer be the capitalist producers who dictate our lives, but quite to the contrary, it will be we, humans living happily in local communities and in cities that shape our own destiny.

Now it remains to show the flows of goods (Fij and Uij) and two services (Lij and Tij), inter- and intra-sectorally. Let i = 1, 2, 3 indicate the sectors from which they originate and j = 1, 2, 3 the sectors to which they are shipped, 1 representing the communities (sector I), 2 the cities (sector II) and 3 the large enterprises (sector III). Then, some finished goods and labour services circulate within the first sector as F11, L11 and some labour services circulate within the second sector as L22, while some quantitative goods U33 circulate within the third sector. So far as the inter-sectoral flows of goods and services are concerned, the first sector ships F12 + T12 to the second sector, and receives U21 + L21 therefrom. The first sector also ships T13 to the third sector, and receives U31 therefrom. Between the second and the third sector, L23 is exchanged for U32Thus overall, the first sector must ship as much as it receives: (1) F12 + T12 + T13 = U21 + L21 +U31 ; the second sector must likewise achieve the equation (2) U21 + L21 + L23 = F12 + U32 + T12: just as the third sector should also have (3) U31  + U32 = T13  + L23 .  Here, equations (1) (2)(3) are accounting identities of the circular flow model.

10d) Now tell us what you wish to achieve in a socialist society and how does the above circular-flow model relate to your image of socialism? 

The circular flow model that I presented above will likely represent the economic substructure of a new socialist society, when the latter eventually comes into being. But we do not need to consciously aim at that model. For, when the welfare state as a nation-state evolves gradually in the right direction, the image of something like that model will naturally emerge in the minds of many people. If significant modifications prove to be necessary, at that stage, let them be adopted without any inhibitions or preconceived ideas. What is important for us is that the welfare state should evolve in a way such as to increasingly liberate human beings from poverty, inequity and repression that emanate from some distortions in human relations (e.g., master-servant relations) that persist in society. Thus, the welfare state should aim at generating “socialism” as a new historical society, which will eventually replace capitalism. It remains for us to review a few important characteristics often associated with the traditional concept of socialism.

First, there is the question of the ownership of the means of production. Traditionally, socialism meant the abolition of private ownership by capital of the means of production and its replacement with a public ownership thereof, where “public” frequently meant “national”. However, the nationalization of private firms so far experimented with in various circumstances has not been very successful, certainly not as successful as its reverse, the privatization of public firms, has sometimes proven to be. The reason has been that the firms operated by bureaucrats often turn out to be poorly managed, beside being frequently a hotbed of corruption. Under the welfare state, as distinct from the bourgeois state, we need not stand on the horns of the dilemma between what is exclusively private and what is strictly public. We only have to apply the wiser and more sensible method of the ownership of the firm’s share à la Schumacher described above. Most of the large firms are joint stock companies listed in a stock exchange, where their common shares are traded daily. But nothing prevents them from issuing special (preferred) shares, of which the management right should be held “dormant” under ordinary circumstances, to the state (at all levels) or to the community in which they operate (so as to represent some “stakeholders”). The real issue is the separation of the ownership of the firm from its business management. The fact that the latter should be left as free as possible from the bureaucratic interferences does not contradict with the other fact that the firm’s pursuit of profit should also be constrained to remaining “socially responsible”. What is true with “large firms” will also apply to “small and medium firms” operating either in communities or in cities as long as they take the form of a joint-stock company, whether their shares are traded in public or not. In the context of the welfare state, the “public” ownership of the means of production amounts to their “social” ownership or ownership “in common” by the people or at least by all of the stake-holders of the enterprise. Thus, there is no need to think of, or worry about, its dreaded bureaucratization due to nationalization.

In Marx’s economics, the “means of production” refer to capital-goods already produced and made available as commodities. They are used jointly with labour-power which is also purchased as a commodity, to produce more use-values again as commodities. In that context, however, only “productive labour” (that is, labour that directly produces use-values) is considered. That is quite appropriate in the context of capitalism which was his sole focus. However, in order to discuss matters beyond capitalism, we must extend the scope of our vision to the more recent trend of tertiarisation or the expanding service sector, which involves “unproductive” labour, in the economy today. This has been increasingly the trend since the last decades of the 20th century, so that labour-power is also consumed to generate unproductive labour. Labour-power is the human capacity the application of which can generate not only “productive labour” but also “unproductive labour”; it can even be spent in “recreation or loafing”. With the sudden advance of the information-and-communications technology (ICT), which promotes automation and robotics, the need for strictly productive labour becomes smaller in many advanced economies, but an increasingly more working employees are engaged today in systems engineering and other information-related services. Their labour is not “productive” in the sense of directly producing use-values, yet they nevertheless earn their living and support their families by using their labour-power to generate “unproductive labour” for the benefit of their employer-firms. The reproduction of their labour-power is, therefore, vitally important for the survival of our society which now depends on unproductive labour as well. Since their labour-power cannot be reproduced “as a commodity”, as under capitalism properly so-called, it must be reproduced otherwise. The welfare state, for its part, is responsible to see to it that it should be reproduced otherwise in one way or other? This is a particularly urgent issue to review at the present time, since the folly of so-called “flexible employment” in the service sector, which in effect amounts to slave labour (implying labour-power being reduced to a “disposable commodity” needing no reproduction of it at all), has of late spread widely throughout the neo-liberal economies (meaning the economies infected by unrestrained neo-conservatism) in the world. Such a practice forebodes the doom of human society.

Under capitalism in which the macro law of population was at work, the market forces automatically generated the “sub-phase of average activity” in the course of each business cycle. During that sub-phase, the value of labour-power as a commodity automatically tended to be determined at the level of wages, which enabled the workers to buy means of livelihood just necessary and sufficient for the reproduction of their labour-power. If they were paid more, they might not return to their workplace tomorrow, because they could take a vacation; if they were paid less, they would not be able to return to the same workplace tomorrow “in the same conditions as regards health and strength”. Thus, there was, in principle, no need for the bourgeois state to worry about the reproduction of the class of wage-workers, except to let the labour market function freely according to minimal legal restrictions. That is no longer the case in the welfare state. For, when capitalism begins to disintegrate, the cyclical sub-phase of average activity, which implied a state of full employment, no longer automatically returns. The welfare state must activate the “mixed economy” in such a way as to fully absorb the habitual spending deficit of the private sector, I – S < 0, with the deficit finance, G – T > 0, of the government sector, to achieve full employment. When the class of working employees is fully employed, however, that does not automatically determine the level of wages that is appropriate for the reproduction of the labour-power of the working employees. This is what is meant by the reproduction of labour-power not as a commodity, but as a non-commodity. But, if so, the most fundamental and essential task of the welfare state is to find ways to “induce rather than compel people to work”. Surely Marx did not talk idly about “labour becoming life’s prime want”, in his Critique of the Gotha Programme, once capitalism was abolished. Labour, productive or unproductive, physical or mental, must not be a drudgery, punishment or disutility. It should not be something to be endured now so as to buy vacation and entertainment later. It should be something fulfilling in itself and be the source of self-satisfaction and pride. That must be what Marx meant by “labour as life’s prime want”. Thus the welfare state will have achieved its goal when it learns how to induce people to work, so as to feel happy and fulfilled, i.e., how to let labour be the prime want of their life. These are moreover the considerations that should intervene between the “objective knowledge of society” and the “wise political practice”; and, according to Uno, it is for the political party aiming at socialism to formulate the best strategy in view of the given surrounding conditions. By the time the welfare state has learned its aim, socialist society will already have evolved, and, as the circular flow model above implies, the nation-state as a carapace will also have withered away.