The First World Keynes Conference: A Follow Up

Erinc Yeldan

The First World Keynes Conference convened over the heated days of June 26-28 at the Izmir Economics University.  Given the current impasse in mainstream economics over the ongoing great recession, it is no surprise that the Conference attracted quite a few dissident voices from many alternative paradigms and fields of research.

It is quite clear to all social scientists able to maintain their sense of scientific clarity that the causes of the global crisis lie beyond the rhetoric of toxic assets, in the realm of what should be called Toxic Economics Textbooks[1].  As the opening lines of the Conference Invitation attest,

“The vastly dominant mainstream model –New Consensus Macroeconomics (NCM) and the related Dynamic Stochastic General Equilibrium (DSGE) model – has not only suffered a severe blow by the eruptions of the recent world financial crisis but must be seen as part of its cause: the quasi-religious believe in super-efficient markets and the self-regulatory capabilities of the representative agent, the main assumption of the framework, pursuing relentlessly its own egoistic interests has distracted most professional economists from investigating the unthinkable: a violently unstable economy. The uncritical acceptance of very restricted formal models as a good approximation of reality has led many economists to produce tools which reinforced organic instability.”

In fact, the whole crisis episode occurred under fanatical de-regulation blessed by mainstream economic theory.  Rational expectations / business cycle theories of perfectly competitive markets, with nice and smooth, convex technologies, perfect foresight and full information sets, provided the ideological foundation of the theater on show since about the early 1980s.

Given this background, quite a number of Conference papers were delivered within the Marxian paradigm.  Naturally, a common thread of most of these papers was the question: “what constitutes the line between the Marxian approach and other schools of thought?”  Unfortunately the debate did not culminate in a satisfactory end result.

One of the sessions came to the conclusion that the main distinguishing features of the Marxian school of thought are the observations of the falling rate of profit and that of unequal exchange. It is no doubt true that these two observations together constitute important explanatory powers within the Marxian approach to crises.  But, to claim that these two are the main pillars of the crisis condition in the capitalist mode of production, I would argue, is gross over-simplification, and does not align with the true essence of Marxism, which sees dialectics and historical materialism as the main sources of change.

Over the course of historical practice, the decline in the rate of return to capital accumulation has been an indispensable underlying factor behind crises of capitalism, both economic and social.  In particular, it is now common knowledge that the origins of the current global crisis lie in the attempts of global capital to secure profitability at a time of falling rates of profit in industrial activities, via financialization.  The post-1980 episode of global quest for profit necessitated the restructuring of the international division of labor, as well as mainstream economic theory, to fit the interests of the rising finance capital.

At the heart of this restructuring was the ascendancy of finance over industry, a global process of financialization that imposed its logic of short-termism, liquidity, flexibility, and immense mobility over the objectives of long term industrialization, sustainable development and accumulation via social welfare driven states. Financialization, as it stands, is a loose term and no consensus yet exists among economists on its definition.  However, starting from David Harvey’s seminal observation that “something significant has changed in the way capitalism has been working since about 1970” (Harvey, 1989: 192), a set of distinguishing characteristics be unveiled. Krippner (2005:174), in line with Arrighi’s The Long Twentieth Century defines it as a pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production.  According to Epstein (2005:3), “financialization means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies”.

Thus, financial returns had, to varying degrees, compensated for the fall in the industrial rate of profit and re-established the supremacy of “Northern” capital based on financial dependence (a la Matias, 2006) over the global “South”.  In the meantime, the classic Marxian observation about terms of trade and dependent technology-driven industrialization that form the bases of unequal exchange in the international commodity markets had become interwoven with global commodity chains and the trans-nationals’ global investment plans.

Consequently, both the falling rate of industrial profit and the patterns of unequal exchange necessitated a renewed look at the patterns of class struggle and the objective basis of new imperialism.  Empirical analyses of the declining rate of profit and unequal exchange, leaving the rest to the “historical duty of the working class towards the world revolution” by no means completes the task of Marxian political economy.

[1] Among many links to the Toxic Economics Textbooks, see, e.g.