More on "Every Man A Speculator": II

(Best read after reading Part I) One contrast with current anti-capitalist rhetoric found in early 20th Century commentary is the prominence of a dysfunctionality critique, rather than a moralistic one. The latter I would say is more dominant these days, especially among the comrades in Democratic Socialists of America. Back in the early 1900s, typified by writers like Thorsten Veblen, an incisive line of criticism went to the notion that control of capital by a moneyed elite was an obstacle to economic development, to Progress itself.

We have seen in the U.S. how monopolization in tech can forestall innovation, though by piling up cash from monopoly profits, monopolies can also plow lots of dough into R&D and other investment. This last is what Jeff Bezos has done with Amazon. How much Progress is gained I leave to other discussions.

The dysfunctionality theme was of course prominent in Marx as well, though it was more concerned with episodic breakdown crises — financial panics, stock market crashes, bank failures — than in a chronic deficiency. In fact, but for such reversals, my impression is that Marx saw capitalism as a dynamic growth machine. (Marx devotees, feel free to correct me.)

One aspect was that, in an age of technological revolution, the big players in manufacturing (backed up by financial cartels) would buy patents on inventions that, if put to use in large-scale manufacturing, would compete with existing plant and equipment. The net result was slower economic growth.

There is a concept in Marx of “fictitious capital.” What happens if somebody has a stake in plant and equipment and some new manufacturing process comes along that is much better? The investment in the older set-up is devalued, or lowered to the level of utter obsolescence. Those expecting returns on the old capital are no longer able to satisfy their payment obligations, fostering chain reactions of defaulted debts and possibly a financial meltdown.

This story is dubious for several reasons. First of all, those invested would come to know the risks associated with possible obsolescence and either hedge their risks or refuse to make such investments unless the returns reflect that risk. So too those in the chain of payment obligations would take steps to hedge against risk. The trade-off between risk and return is as old as investing itself. Second, if the innovation is genuinely profitable, sooner or later it would be taken up. The older capital would age out of use.

One noteworthy target of this “dead hand of the past” was the public sector. The most infamous example is the tale of auto companies conspiring to hold back public transit — streetcars — in cities. In my research on the postal service, private companies ran a running battle, largely successful, to prevent the USPS from expanding its scope to new lines of business.

There are financial meltdowns, but “fictitious capital” is not the cause. New capital eats old capital all the time. Given the pace of innovation, capitalism would have to be a much more rickety contraption.

More to the point is the role of financial elites in somehow or other screwing up things for everybody else. We can observe this in kleptocracies, such as Putin’s Russia. Property rights dependent on politics drives away capital and entrepreneurship. We can see how the richest oligarchs pollute our own political system.

One aspect of this for the U.S. is oligarchs opening up the U.S. to foreign intervention from nations whose economic systems are markedly inferior to our own. I’ve said in the past that this is one factor that underlies the conflict between Russia and Ukraine. The latter wants to follow the relatively superior path of the European Union. Russia’s oligarchs want to retain Ukraine as an object of plunder.

I mentioned cartelization of finance in my previous post. It is interesting to note the divide in reactions to this before the first world war. One one side you had reformers who looked to anti-trust policy to restore a fundamentally benign capitalist markets. On the other you had more radical sorts who saw centralization as an opportunity for socialist transformation.

These days there is not much interest in public takeover of monopolies. I tried to make this case in my paper on the US Postal Service. There have been a few glimmers of interest in the notion. One was the speculations of my friend Matt Bruenig on index funds. (Index funds are a way for investors to buy a basket of securities — stock in individual companies — without actually owning the stocks of those companies.) Another was the book I reviewed by Leigh Phillips and Michal Rozworski on how the experience of Amazon and Walmart shows the practicality of central planning.

I don’t buy either of the arguments but I am glad to see somebody on the left talking about social ownership. Even Bernie Sanders isn’t interested. Public ownership is a logical alternative for markets that malfunction due to lack of competition. A predatory monopoly could be better owned and run under democratic control. Anti-trust in certain cases might work well, but not necessarily in every situation.

More to come on the Fraser book.