Capitalism defended (1983)

Pamphlet Review from the October 1983 issue of the Socialist Standard

Is Socialism Impossible? by D. R. Steele (Libertarian Alliance Ltd, 50p).

If this constitutes the most effective assault on the idea of socialism which the apologists for capitalism can muster, then we can feel quite confident in our claim that there is no serious opposition to our case. The guiding inspiration for ideas presented in this pamphlet is Ludwig von Mises, a forgotten economist of the 1920s who, among other worthless achievements, was the tutor who taught the modern priest of monetarism. F. A. Hayek, everything he does not know about economics. Like Mises, Steele proclaims that “market prices are the only methods . . . for performing economic calculation in an advanced industrial society". The sole point in Steele's argument is that the market, with its price mechanism, enables society to know how much to produce in response to the demands of the population. In the midst of a crisis of overproduction, where food is being thrown in the sea while millions starve, houses stand empty while workers arc homeless and factories close while there is enormous deprivation among the world’s working class, one might conclude justifiably that only an idiot could assert that the market is anything like an effective communicator of needs. Under capitalism, the function of the market is to realise profit, regardless of human need.

Steele's sole point is based on a sole error — not his, but that of Mises. The latter dismisses the possibility of socialism on the grounds that such a society would have to regulate production and distribution on the basis of a central plan which could not possibly keep up with the varied and localised needs of a complex, industrial world society. As Steele says. "Mises always made clear what he meant by socialism . . . social production would be planned and managed as a single unit by a single supreme planning body” (p. 13). On the next page we are told that "Mises defined socialism in terms of ownership by ‘the community'. In passing he indicated that this could mean nothing other than state ownership . . .". So, like most devastating critiques of socialism, Mises and Steele have erected a model of state control of society and then, with effortless case, shown how such a society offers no workable alternative to the market. And they are right. Socialism, which can only be established when the vast majority of workers want it and understand what it entails, will be a classless, stateless, moneyless society where democratic conscious control of resources will have one sole aim: to produce for use.

Steve Coleman

Capitalist vs Capitalist (2017)

Book Review from the April 2017 issue of the Socialist Standard

'Hayek vs Keynes. A Battle of ideas'. By Thomas Hoerber. (Reaktion Books. 2017. 150 pages)

This short book compares the ideas of what the blurb on the back calls 'these two giants of the history of economics,' discussing Keynes's The General Theory of Employment, Interest and Money (1936) and Hayek's The Road to Serfdom (1944).

But there is no comparison. Keynes's book is a serious work, criticising the workings of the capitalist economy as he saw it and which dominated economic teaching and policy-making for forty years. Hayek's book, on the other hand, was an anti-socialist rant by a reactionary who regretted the growing state interference in the economy under capitalism, claiming that it would lead to totalitarianism along the lines of Nazi Germany and Stalinist Russia. It was on a par with Churchill’s notorious 'Gestapo speech' aimed at the Labour Party in the 1945 general election and may well have inspired it. Hayek was only plucked from his well-deserved obscurity thirty years later and awarded a politically-motivated Nobel Prize for Economics. His admirer Thatcher made him a Companion of Honour.

It is of interest to compare the views of the advocates of unreconstructed laissez-faire capitalism with the reformed capitalism offered by Keynes, but there is no need to elevate a common or garden apologist for capitalism like Hayek to the status of a 'giant of economic thought' to do this.

Keynes's criticism of laissez-faire capitalism was that it could lead – and had led in the 1930s – to a situation where production and income balanced each other at a level below full employment. He proposed to remedy this by the government increasing its spending and redistributing income from the rich to those more likely to spend than save it. This fitted in well with the reforms advocated by Labour and Social Democratic parties who, after WW2, enthusiastically embraced Keynes. Hoerber records that, at its congress in Bad Godesberg in 1959, the SPD publicly abandoned (paper) Marxism for Keynesianism.

For 25 years Keynes's approach appeared to work as there was virtually full employment. But was this due to governments pursuing his policies? A more plausible explanation was post-war reconstruction and an expansion of the world market. The test came with the end of the post-war boom in the 1970s, a test Keynesianism failed as its application led not to full employment but to 'stagflation' (continuing stagnation + inflation). Keynes was discredited, but were those he had criticised vindicated?

Hayek certainly wasn't as there had been no trend towards 'serfdom', or totalitarianism. Even so, others who had argued that the capitalist economy could not be planned to avoid the boom/slump cycle and ensure permanent full employment were proved correct. But this strengthens rather than weakens the case against capitalism – as it can't be mended, it has to be ended.

Adam Buick

Money-worship (1991)

Book Review from the April 1991 issue of the Socialist Standard

Hayek and the Market. By Jim Tomlinson, Pluto Press, £24.95.

Hayek has been a notorious life-long opponent of socialism, and not just of socialism but even of relatively mild reformist and trade union attempts to improve working class conditions within capitalism.

After the publication of his book The Road to Serfdom in 1944 nothing much more was heard of him until he re-emerged in the 1970s to provide intellectual ammunition for the Thatcherite wing of the Tory party. So Tomlinson’s short, readable but expensive book can serve a purpose on the principle of “know thine enemy".

An Austrian by birth. Hayek began his political life as a member of that country’s school of anti-socialism associated with the name of Ludwig Von Mises. Mises argued, that without buying and selling, money and prices it would be impossible to make rational decisions about what to produce and how to produce it; production solely for use and without monetary calculation was thus a mere pipe- dream. This was the argument against socialism. But the Mises school went on to argue that, even if buying and selling, money and prices exist, rational economic decisions would still not be able to be made unless prices were fixed by the free play of market forces. This was the argument against state capitalism and reformism (but which they also, either mistakenly or lyingly, called socialism).

Hayek’s main argument was directed at state capitalism and the concept of the central planning of all economic activity. He convincingly showed that the modern productive system was so complicated that it could not be planned from a single centre and that therefore some decentralization and autonomy for producers was a necessity. He went on to argue, however, that this made the market economically inevitable, an argument that is now accepted not only by open champions of capitalism like Thatcher but also by the likes of Kinnock and Gorbachev.

But this conclusion by no means follows, since why is it impossible to conceive of a system in which groups of producers would be responding not to market demand but to real demand as indicated by what people took under conditions of free access? Why could a system of production solely for use not be able to function on the same sort of self-regulating basis as the market is supposed to?

Hayek, however, ruled out this option in advance, arguing that there were only two choices: either free market capitalism or some form of statism. As he wrote in The Road to Serfdom:

The only alternative to submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men.

We deny this. The choice is not between the dictatorship of the market and the dictatorship of some state bureaucracy. A free, socialist society without either the market or the state is possible.

Adam Buick

Political Notes: Spare coppers for the police (1980)

The Political Notes Column from the April 1980 issue of the Socialist Standard

SPARE COPPERS FOR THE POLICE

But if money is tight for education, social services, housing, OAPs, the unemployed, mothers, the sick, there is one organisation for which the benevolent Tories have always got a spare copper—the police. The Chairman of the West Midland Police Committee, Councillor Ronald Wooten, is reported as calling “for the trimming of ‘candy floss’ items, such as education and social services so that more money would be available for the police” (The Guardian 6.3.80). The Chief Constable of the West Midlands, Sir Philip Knights, explained that the increased police forces were necessary to deal with “political and industrial demonstrations”.

At least this Councillor and Chief Cop have got their priorities clear; the police must be sufficiently staffed to allow thousands of them suddenly to appear when workers go on strike because of their low pay or rotten working conditions. These spokesmen for the most hard line and vicious elements of the capitalist class clearly want to ensure both that workers’ living standards are cut and that there is no effective protest that can be made. “A regular commitment to public order situations” (as Chief Constable Knights put it) is more important than a bit of extra cash for those in desperate need.

COMPLAINTS

As a final irony, the West Midlands Police Committee have asked for an additional Assistant Chief Constable. They are going to get one; no question of jobs being frozen or no new recruitment here. And what will his (it will be a he) job be? Knights said that “the increased number of complaints against the force meant that the Deputy Chief Constable was overburdened”. So the new Assistant Chief Constable will deal with the complaints. No doubt the Conservative Manifesto in 1979 meant what it said: “The most disturbing threat to freedom and security is the growing disrespect for the rule of law”; it might have added, that the police themselves disregard the law when it suits them. One piece of London graffiti sums it up: “Help the Police—beat yourself up”.

SURPRISE?

It is no use being surprised at the Tory hash or the Tory harshness, or shocked that money is apparently available for overt repression, but not for “social” services. Capitalism is going through a crisis, and the workers get squeezed even harder. Thousands may march from Hyde Park to Trafalgar Square to protest as they did on Sunday 9 March. But mere protests leave capitalism untouched. The annals of history are littered with the dead of those who only protested.

FRIEDMANITE GURUS

It is no wonder the Tory government is in such a mess. The Tories are making a speciality of Milton Friedmanite policies with the guru himself explaining them at peak viewing hours. He claims his monetarist dogmas will prevent everything from unemployment to World War III, as he trips through the sweat shops of Hong Kong, waving his arms and talking of freedom. Even Keith Joseph must see the incongruity. But even worse is the activity of another guru, the London Business School. This prestigious training centre for capitalist managerial hacks, has for the last few years regularly trotted out gloomy reports and urged the sort of monetarist clap-trap that the Thatcherite evangelists have preached ever since Sailor Heath was made to walk the plank. So much did Maggie love the LBS’s reports that she drafted in one of its Professors (Terry Burns) to be her government’s economic adviser. (The 1964 Wilson government tried a similar dodge. They got their economic illusionists from Cambridge the farce of the Kaldor-Balogh reign.)

The declared policy of Tory Chancellor Geoffrey Howe is to try to reduce the public sector borrowing requirements by further cuts in government expenditure. But the LBS is up in arms about this. The Guardian (3.3.80) comments: “By persisting with its plans to control the borrowing requirements next year the Chancellor is going out on a limb and ignoring advice from an organisation from which it derived much of its previous monetarist inspiration”. Others are getting in on the act of criticising government economic strategy. “A strong call for a Government Incomes Policy comes today from the National Institute of Economic and Social Research. Its February Review argues that without an Incomes Policy fiscal and monetary measures alone would not be enough to achieve conventional economic policy goals” (Daily Mail 3.3.80). Is it coincidental that the Treasury has reduced the National Institute’s budget by half for the next year?

But no wonder Thatcher is confused. After all, she is only doing what the LBS, the National Institute and Milton Friedman have been demanding for years. Even the Archbishop of Reactionism, F. Hayek, is getting in on the act, writing angry letters to the press complaining that the government is causing inflation (The Times 5.3.80). Poor Thatcher; if the Hayeks and the Friedmans, the LBSs and the NIs are abandoning her, then she really is going to be left without a friend in the world.

MONEY TALKS

Still, this talk of money is a little irrelevant; after all most people don’t see very much of the stuff. A Low Pay Unit report in October last year said that a record number of people were living in officially designated poverty conditions. British mothers are given the second lowest maternity grant in Europe (only Eire is worse) and even some of the poor “third world” countries manage to find more for expectant mothers and new-born babies than Britain (The Times 23.11.79). Of course, the Tories would say, this does not matter in Britain because living standards have risen greatly over the last hundred years. That is what they would like us to believe anyway. But another Low Pay Unit report in February this year disclosed that the poorest workers in Britain earn less today in relation to average pay than in the 1880s. Nearly 6 million adult workers (34 per cent of the labour force) earn less than £60 per week. “They would have needed to earn that amount to be left with an income after tax equivalent to the official poverty line, as measured by the supplementary benefit rates for a family with 2 children . . . In fact the report states, the pattern of low pay since the 1880s shows a depressing rigidity” (The Times 11.2.80). Whether Tories or Labour are in power, capitalist interests come first.

Ronnie Warrington

Marx and vulgar economics (1987)

From the March 1987 issue of the Socialist Standard

For Marx the social reality that lay behind capitalist production consisted of more than just prices and quantities. The publication of Capital in 1867 was Marx's own unique contribution to this more detailed study of commodity production. The result was the systematic discovery and critique of the laws of capitalism: the economic relationship between capital and labour; the basis on which the product of labour takes the form of a commodity and the underlying contradictions which cause the system repeatedly to pass through periods of boom, crisis and slump. In other words Marx stripped away the surface appearances of capitalist production to show that the central feature of the system was the economic exploitation of the working class during the process of production itself. In so doing he highlighted the parasitical nature of the capitalist class and their ever-increasing historical irrelevance to a point where today the very system of commodity production acts as an obstacle to a more rational organisation and development of society.

Consequently Marx had little time for those economists of his own day who deliberately set out either to defend capitalism or to rectify its inherent contradictions by means of various palliatives or reforms. The footnotes to Capital are strewn with vitriolic comments and side remarks against the leading economists of the 19th century, whether they were "mere sophists and sycophants of the ruling-classes" or the "shallow syncretism" of men like John Stuart Mill.

But it was the "herd of vulgar economic apologists", like Bentham and Malthus, whom Marx particularly singled out to attack. As he wrote in an earlier work:

Their object is rather to represent production in contradiction to distribution ... as subject to eternal laws independent of history, and then to substitute bourgeois relations, in an underhand way. as immutable laws of society in abstracto. (Grundrisse, pp.26-32).

Since his death, what has passed for twentieth century economics has generally followed the vulgar economist trend of the preceding century. There seems to be a Bentham or Malthus born every generation. The so-called leading economists of this century — Keynes, Hayek, Galbraith, Friedman and now Buchanan — have all written works either justifying the principles of the free market or offered "solutions" to capitalism’s periodic upheavals. Divorced from the real world of working-class experience, these economists have only ever concerned themselves with fiscal studies, profits, competition. markets and consumers. They have drifted aimlessly from one crisis to another, unable to understand the very system they purport to defend. Even though they use sophisticated mathematical analysis, statistical data and computer modelling of the economy, it does not make their theories or pronouncements credible, correct or scientific. On the contrary they are in a similar position to the eccentric mysticism of the alchemists during the Middle Ages, forever reformulating the same impotent propositions in an ever more incomprehensible language.

However, the utter failure of twentieth century economics to address the real problems of people’s day-to-day needs throughout the world has not seemed to deter the publication of one new economic theory after another. Each new theory — and there seems to be a pet economic theory for every professor living or dead — is offered up as some universal panacea for the continuing waste, poverty and occasional deliberate under-production that characterises capitalism. Some theories remain unread, just left to gather dust on some academic library shelf, while others have been dissected or watered down to suit the immediate pragmatic or ideological needs of successive governments as they have struggled to administer the economy. In the same way that clothes or pop stars come in and out of fashion so too do the ideas and personalities that abound within the Alice in Wonderland world of vulgar economy. Keynes’ theories, no longer fashionable as a useful political dogma, have been largely abandoned by economists and politicians alike in favour of the more entrenched anti-working-class doctrines of Milton Friedman or Friedrich Hayek.

If it was not for the economic crisis during the 1970s Friedman would most probably have spent the remainder of his life offering advice to capitalists living in and around Chicago; but with the almost universal rejection of Keynes, Friedman and his monetarist doctrines were adopted to fill the void in government economic policy. But monetarism did not help solve the problems facing governments and it certainly had no bearing on the unemployed. But then Friedman has no interest in the working class; they do not pay his salaries or buy his books. The revival of 19th century economic liberalism spearheaded by Hayek is the latest economic fashion. Hardly a day passes without one of the master's disciples claiming on the television or radio, that the whole business of buying and selling will create some form of capitalist Utopia. Indeed Hayek's rise to stardom has been as rapid as Keynes' was during the late 1930s. From power centres such as the Adam Smith Institute, the Institute of Directors and from economics departments such as the LSE and Liverpool University, these market anarchists preach the Hayekian virtues of an “entrepreneur-led and market-driven society".

Although Hayek has been around for a long time the idea that capitalism works in terms of efficient production and distribution of wealth is even older. However, we have just to consider capitalism from an historical perspective in conjunction with our day-to- day struggle to realise that the claim made by Hayek and his disciples is wrong. Capitalism has never worked in our interests, with or without government interference. It is incapable of satisfying human needs while at the same time producing for profit. Throughout their writings the market anarchists seldom mention the millions who die of hunger, nor the increasing concentration of wealth in the hands of a few privileged social parasites. They are also quiet, to the point of dumbness, on the deliberate under-production of foodstuffs to maintain profits as they are about the burning of wheat or fruit because there is no market for it. As the pamphlet A World of Abundance, produced by socialists in Canada, stated:

Socialists are hardened by now to meeting the opinion that the system of production for profit is essentially sane and efficient. The opposite is true; . . . capitalism wastes its wealth and its abilities. The profit motive cannot work efficiently. Capitalism cannot cater for the needs of its people. It produces waste and it produces want and both are profitable only to the minority who hold positions of privilege.

Marx did not write for academics but for the working class. He wanted us to understand the system that to this day enslaves us and to use his works in our continuing class struggle. Hayek will become unfashionable as quickly as he became fashionable; not so Marx, whose relevance will remain until that day when the working class finally capture political power and democratically establish socialism.

Richard Lloyd 

Farewell, Free Marketeers (1989)

From the December 1989 issue of the Socialist Standard

To defend Marx against criticism is not to be taken as implying endorsement of everything he said and wrote. The man himself continually updated and corrected his theories. Who are we to foist omniscience upon him? But there are those who behave as if his was the final word upon capitalism, and past history, and the future. One can imagine his scathing reaction to any such flattery. His ruthless abandonment of the beginning and the end of the Communist Manifesto, of the reformism in his earlier proposals in favour of the abolition of the wages system, and of his tidy schema of social evolution so as to accommodate the Asiatic mode of production, these and other changes of direction demonstrate that humility which is the beginning of wisdom.

Feeble Grip on Logic

Marx may well have been the pathologically quarrelsome old sponger that Arthur Koestier claimed. He may have loved his mother and been kind to little dogs. We can leave those concerns to the propagandists of the status quo: the Von Mises and Hayeks and Friedmans and Poppers and Nozicks of this world, who all share a feeble grip on the Logic of Aristotle.

Von Mises charges the critics of capitalism with being merely intellectuals who are jealous of the businessmen's wealth. This used to be called the fallacy of argumentum ad hominen. It was illustrated by the case of a Counsel who returned a hopeless brief to his junior with the advice: No case. Abuse the plaintiffs attorney! And this is the final word of a man who pleads for his economics to be regarded as a science.

His pupil Hayek is an equal master of logic:

It is money which in existing society opens an astounding range of choice to the poor man.

and

Some voluntary (sic) labour service on military lines might well be the best form for the state to provide the certainty of an opportunity for work and a minimum income for all.

He later repeats the argument in favour of forced labour, where unions resist wage cuts after a war, and all this in a polemic against an unbelievably muddled notion of socialism, called The Road to Serfdom.

Metaphysical Predictions

Hayek's colleague Karl Popper provides the explanation of how the system will benefit us all. It is because of the unintended consequences of all our individual actions which in some mysterious way combine to do good. Popper insists that all theories which cannot be falsified by experience are metaphysical. A. J. Ayer pointed out that this would make a statement “there are white swans” a metaphysical proposition as what experience could show it to be false?

It is equally difficult to see how Popper's own theory could be falsified. Perhaps Ayer saved Popper from the consequences of his own foolishness. He could not save him from the silly argument that all wide-ranging, long-term predictions are metaphysical. Popper should go and tell that to the insurance companies. It was, of course, the rationale for an attack on Marx's view of the future, which was not scientific prediction, he says, but metaphysical prophecy. I predict, you prophesy, he reads tea-cups.

Popper began by pleading for “piecemeal social engineering" as an alternative to wholesale social change. We can sympathise with his emotions when we consider that the book which gave him notoriety, The Open Society and Its Enemies, was written during the Second World War, with the horrors of Stalinism and Hitlerism on everybody's mind, and Popper himself a refugee. With the growing disenchantment of the establishment with any kind of social engineering after the failure of the Heath government, however, he adopted a more Panglossian view, and decided against change, piecemeal or otherwise.

Joining the Game in the Middle

Nozick in Anarchy, State and Utopia, argues for maintaining the status quo but with minimum interference by the state. He lays great store by the right of private property, but he joins the game in the middle and does not seem to be aware that the game was started by a great act of violent dispossession backed by the state. His position is therefore one of ignorance or lack of scruple.

Friedman is another who argues that we only act from selfish motives but that the unintended consequences of our actions are that everybody benefits, that Adam Smith's “invisible hand” sees that we are all alright. Many people in 19th century Britain and 20th century wherever might be puzzled by this claim. In any case, Friedman casts doubt on his fidelity to this belief when he says that it does not apply to academics. They act, apparently, just to secure the approval of their fellows. Whether this unselfishness deprives us all of benefits, he doesn't say.

Booed off the Stage

It was the collapse of credibility in the Keynesian and Fabian consensus that brought these propagandists of the Free-Market to the front of the stage in the 1970s. They had been waiting a long time, ever since the 1930s. The Great Crash had destroyed the plausibility of the argument: the US until 1929 was about as free an economy as was ever likely to arise in a real world, and it produced catastrophe, needing a long time to forget. The reaction was state-intervention everywhere. The most complete Keynesian of them all was probably Adolph Hitler.

With the intellectual trashing of these interventionists by the increasing economic crises —stop-go, stagflation— as the Second World War receded, the scene was set once more for the Free Market to be offered up as the solution to all our ills. And what better place to try it out than Britain? As Galbraith pointed out, there was no excuse if it failed. A sober, almost phlegmatic population, almost designed for the “we can take it" role.

The innings has been a short one, a mere decade. This might well turn out to be the excuse the next time round. It recalls the Irish nonagenarian keening over the death of her seventy-five year old son: "I didn't have time to raise him. I didn't have time to raise him."

Any time now the roof of the world economy could fall in, though only a fool would put a date to it. The otherwise prescient City tipster Bob Beckman sold his house in Regents Park in 1983 anticipating the crash and missed the greatest rise in property values in history. The Free-Market act is going to dance off the stage to the boos of its erstwhile supporters. But what is next on the bill? Are memories so short?

Ken Smith

Planning the road to nowhere (1978)

From the November 1978 issue of the Socialist Standard

Professor F.A. Hayek, in his recent lecture on "The Market Economy" (published in the Listener, 3, 10 & 17 August), performed one useful service, though it was not intentional. Hayek wants to go back to the open competitive market as envisaged by Adam Smith, with a minimum of government interference. In particular he denounces the vogue for government planning of the economy that came to the fore with the acceptance of Keynesian doctrines thirty years ago. He has no difficulty in showing that the attempt has been a failure. Two examples will suffice to show how great the failure has been. When the Labour Party pledged itself to "plan" jobs for all, did it also plan for over a million and a half unemployed? And when Labour (and Tory) Governments planned the investment of hundreds of millions of pounds to expand the steel industry did they also foresee the current plan, reported in the Sunday Telegraph (24 September 1978)? 

British Steel Corporation & Department of Industry officials are believed to have reached a private agreement to reduce the State-owned concern's work force by 140,000, nearly three-quarters, over the next five years.

This is in addition to the many tens of thousands already made redundant. 

Hayek calls this Keynesian fiasco a failure of "socialist" planning, but does not deal at all with the real concept of planning in a socialist society. He does not notice that his open market doctrine and the Keynesian doctrine are both of them attempts to plan the capitalist market, while Socialism is concerned with a non-market society. 

Hayek's useful contribution is that he spells out the unforeseeable and uncontrollable factors that dominate the market in both sets of circumstances, his own and the Keynesian. 

His argument, the familiar laissez-faire case of Adam Smith, is that if prices are left to find their own level with no government interference or planning, each worker and capitalist will be guided by changing wage levels in each occupation and by changed selling prices to seek new jobs and change production lines, in harmony with the overall total demands of the market, and that this will minimize unemployment and maximise production. But he candidly admits that nobody knows or can know in advance what the overall result of all these separate judgments is going to be: it can at best be only a question of trial and error, or partially informed guess-work. He says, for example, that "all economic problems are caused by the occurrence of unforeseen events". He calls price (and wage) changes arising out of market forces the "guiding signal" but admits: "even the most perfect market prices do not take into account all the circumstances we would wish to be taken into account"; he lamely adds that "a signal that takes account of most of them is better than none". 

So his case for the open market as against the Keynesian planners boils down to the argument that while both of them mean operating largely in ignorance, the government planners, through greater rigidity, are likely to fare worse. His example of the success of the open market is the second half of the 19th century, which included, though he does not mention the fact, the Great Depression of 1875-1895. 

The people, especially the Labour Party, who have thought they could plan capitalism have relied on the big increase of statistical material in recent years and the numerous governmental and private bodies engaged in forecasting. The record has been one of almost consistent error. It was population "experts" who forecast for the government in 1956 that by the end of the century the population of this country would be 53 million; but amended it in 1962 to 68 million. Their short term forecasts were equally wrong. 

It was a commercial Market Survey in 1939 that,in line with current fashion about population trends, forecast a population for Great Britain of 39 million in 1961: it turned out to be 51 million. 

Samuel Brittan in his The Treasury under the Tories 1951-1964 has a chapter headed "Crystal gazers in Chief" in which he describes the dismal record of the government's economic advisers in the field of forecasting. A typical comment is:

Export forecasting has a particularly bad record - even worse than forecasting in general. In the last few years shaking dice might actually have led to better results. 

One outstanding failure of the Labour Government was the National Plan of 1965. It planned for a growth of the National Product of 25 per cent between 1964 and 1970. Apart from the problems of coordinating all the separate industry plans into a comprehensive national plan, it overlooked that the products had to be sold at a profit, which depended on uncontrollable world market factors. The actual increase in those years turned out to be 15 per cent. Of course it is a hopeless endeavour. In order to know how British Companies and the whole economy will fare in future years the government would need to know the secret plans of all companies and governments in the world, to know which harvest would fail, what wars will break out and at what point the world market will lurch into one of its periodic depressions. They can guess but they cannot know. 

Looking ahead 

Professor Hayek gives the impression that while company market planning is not perfect it is nevertheless pretty accurate. This is not borne out by the forward planning of Royal Dutch-Shell. Mr. Frank S. McFadzean, a managing director of the group, in Galbraith & the Planners not only made scathing criticism of the National Plan, but admitted the limitations of planning by his own company. 

Except in the very short period ahead, we are not really impressed by the detailed results shown by our plans. It will be the sheerest fluke if we ever achieve them Looking back to 1962 and what we then prognosticated . . .  we were wrong on many counts. We were wrong on volumes, we were wrong on prices, we were particularly wide of the mark on our estimates of the demand for and price of naphtha, we were wrong on our cost projections, we were wrong on the level of investment we would need to make. We did not fully foresee the increase in the size of tankers; we did not foresee the extent of Libya's crude oil production; we did not foresee the dominant role that natural gas would play in Holland . . . we did not foresee the closure of the Suez Canal."

(Sunday Telegraph 6 April 1969) 

What of planning in a world socialist society? 

Here the problem is quite different because production will be solely for use, not for sale. There will be no market curtailments of production, such as happen under capitalism, because particular industries have over-produced for their market and can no longer make profit. There will be coordinated planning of production and distribution to meet known human needs. It will have to provide safe margins for growth and to allow for harvest failures and other natural disasters. It will have access to all the world's productive resources not, as under capitalism, have many of these resources not used because there is no profit in their use. 

Here also Professor Hayek provides us with the evidence about capitalism, where he condemns "the fatal mistake, frequently made by engineers, to imagine that there are long-lasting, technically determined production methods which are superior to all others". Hayek says that under the guidance of price changes the production method favoured by capitalism may not be the one favoured by the engineers; "This is an academic and not a technological problem", in other words, one determined by profitability. 

Edgar Hardcastle

Neither Keynes nor Hayek (2011)

The Cooking the Books column from the October 2011 issue of the Socialist Standard

On 26 July Paul Mason, economics editor of the Tonight programme, chaired a debate at the London School of Economics between supporters of the doctrine of J. M. Keynes (1883-1946) and those of F. A. von Hayek (1899-1992). The Keynesians were represented by Keynes’s biographer, Lord Skidelsky, and an economist working for an international trade union federation; the Hayekians by George Selgin, professor at an American business school, and Jamie White, an eccentric philosopher. The debate was later broadcast on BBC Radio4 and is available as a podcast.

Lord Skidelsky explained Keynes’s basic argument that once capitalism had got itself into a slump there was no automatic mechanism to bring about a recovery; on the contrary, without government intervention to sustain and increase spending, the economy would tend towards an equilibrium position well below full employment. At the start of the 1930’s slump Hayek had advocated “liquidate everything” – let failing businesses and banks go under – but, Skidelsky said, you can’t cut your way out of a slump.

Jamie White, who is rather more than a Hayekian (more an anarcho-capitalist), said that Hayek was right to have advocated liquidation as the way out of a slump; the businesses that survived would be more efficient and their investments would lead the recovery. To the applause of the claque of Hayekians in the audience, he said that Roosevelt’s spending policies had only prolonged the depression of the 1930s. You can’t spend your way out of a slump, he said, as had been shown in the 1970s and was being demonstrated again now.

The American business professor said that Keynes had had no theory as to why capitalism got into a slump in the first place. Hayek had; it was that government monetary policy promoting cheap credit encouraged an artificial boom which led businesses to invest in activities that were not sustainable and which would sooner or later collapse. This had happened in the 1920s and was the cause of the present slump when “over-investment” in housing and finance collapsed. Once this situation had been reached the only way out was to let liquidation take its course. There was no painless exit from a slump caused by an unsustainable boom bursting. The only way to avoid a slump was to avoid the preceding boom by not allowing the government to pursue a lax monetary policy. And the way to do this was to abolish central banking and let the market determine interest rates and bank loans.

It is true that Keynes had no truly coherent theory as to why capitalism got into slumps from time to time. On the other hand, the purely monetary explanation offered by Hayek is inadequate. Slumps are indeed caused by “over-investment” leading to overproduction but this comes about through the anarchic pursuit of profits that is part of capitalism. When a boom is underway the market is expanding; competing businesses assume that they will benefit from this and plan to expand their production; in the end production expands more than the market, resulting in overproduction, a financial crisis and then a slump.

When it comes to how to get out of a slump, the Hayekians have a point. Inefficient businesses have to be eliminated. Marx made the same point but from a different position, seeing slumps as part of a boom/slump cycle that was built-in to capitalism, as periods during which, precisely, unprofitable businesses were eliminated as a condition for capital accumulation to resume.

Unlike both the Hayekians (who say slumps can be avoided by governments adopting a laissez-faire monetary policy) and the Keynesian (who say that appropriate state intervention can end the boom/slump cycle), Marx held that there was no formula for steady growth without booms and slumps. For him these were endemic to capitalism, being in fact its “law of motion”.  They will keep on recurring as long as capitalism does and there is nothing governments could do to stop this.