Cutting Edge Economic Theory, circa 1929

I’m trying to imagine an alternate universe where, after taking a severe beating in the polls in 1994 or 2002, the remaining Democrats in Congress had meetings where they all started reading Marx, re-discovered the labor theory of value, and had learning sessions with Neo-Marxists like David Harvey*. The Treasury Secretary would sit confused as members of Congress pelted him with questions about over-production, the inherent contradictions of capitalism, the collapse of time/space in the face of late capitalism and the limits to capital.

In some ways it would be kind of awesome. In this universe, I’m also finding it kind of awesome that Republicans, after taking a hard beating, have decided to rediscover another discredited economic school, the Austrian School, and are starting to look to Ron Paul for economic leadership.

From Dave Weigel, who is quickly becoming one of my favorite Washington writers:

A funny thing has started happening to Paul since his long-shot presidential campaign ended quietly in the summer of 2008. More Republicans have started listening to him. There are the media requests from Fox Business Channel and talk radio, where he’s given airtime to inveigh on sound money and macroeconomics. There is HR 1207 , the Federal Reserve Transparency Act of 2009, a bill that would launch an audit of the Federal Reserve System, and which has attracted 112 co-sponsors. When Paul introduced the Federal Reserve Board Abolition Act just two years ago, no other members of Congress signed on.

And then there are the luncheons. The off-the-record talks have brought in speakers such as ex-CIA counterterrorism expert Michael Scheuer, libertarian investigative reporter James Bovard, iconoclastic terrorism scholar Robert Pape, and George Washington University law professor Jonathan Turley. Perhaps the most influential guest has been Thomas Woods, a conservative scholar whose previous books include “The Politically Incorrect Guide to American History” and “Who Killed the Constitution?: The Fate of American Liberty from World War I to George W. Bush,” and whose current book “Meltdown” has inspired Rep. Michele Bachmann (R-Minn.) to question Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner about economic fundamentals.

I think he may overstate the case a bit, but it makes for a good article. There are only a dozen house members, not that many, though the article gives good context for the endless youtube clip that is Bachmann’s career. Mostly I want to use this to link to John Quiggin’s takedown of the Austrian school. It’s a good piece, that also links to may other critiques from across the spectrum.

I like this cute note from Tyler Cowen:

Let’s say that the government subsidized the price of bananas, you bought so many bananas, put them on your roof, and then the roof collapsed. Is that government failure or market failure? The price was distorted, but I still say this is mostly market failure. No one made you put so many bananas on your roof.

I never got the Austrian critique about how the market couldn’t simply absorb the information and adverse effects of government policy. The government distorts price signals? I can click here and get the implied probabilities of future rate movements by the Fed, and click here to get a sense of how the market feels about future inflation.

*This is nothing against David Harvey, whose “The Conditions of Postmodernity” I’m currently enjoying, and who now has his class on reading Marx’s Capital Vol. 1 online. It’s an interesting thing to listen to while doing the financial engineering. However if the 2002 Democrats were going to use him as a platform for a politican comeback, I’d be more than worried.

Update: Here’s something that always makes me laugh. From the first years of the Frankfurt School, the Marxist school that gives us false consciousness, Adorno, “The Work of Art in the Age of Mechanical Reproduction”, Habermas, and more, a letter dug up in Martin Jay’s excellent history, The Dialectical Imagination, where a Marxist graduate student at the School in the 1920s is complaining about how the Marxist economics program has Too Much Math! Not enough real life! Just like economic students complain now:

The tone of the Grunberg years, a tone very different from that set after Horkheimer replaced him as director, was captured in a letter sent by a student at the Institut, Oscar H. Swede, to the American Marxist Max Eastman in 1927. The relative orthodoxy of the Institut’s Marxism was frustrating to the young Swede, who complained of spending

hours of exasperating argument in a Marxist Institute with a younger generation settling down to an orthodox religion and the worship of an iconographic literature, not to mention blackboards full of mathematical juggling with blocks of 1000 k + 400 w of Marx’s divisions of capital’s function, and the like. God! (p.12)

I love the idea of Adorno sitting down with a booklet and having to solve for the optimal labor-value using whatever was a Bellman equation before Richard Bellman, circling “1000 k + 400 w” as his answer. And that’s waayyy mathier than what counts for Austrian school these days….

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3 Responses to Cutting Edge Economic Theory, circa 1929

  1. chrismealy says:

    If you start explaining Sraffa this will be my favorite blog ever.

  2. Mike says:

    There’s a post in the back of my mind where I try to explain the problems with banking in light of schizophrenic Fordist collapse. I can allude to Gramsci if it’ll count for Sraffa credit. There will be charts.

    I added an update with an old quote from the Frankfurt School about math in economics that always makes me laugh.

  3. tehdude says:

    If by discredited you mean “accurately predicted current economic crises” then of course. They stand in shame before the intellectual might of mainstream economics, so creditable, that not only accurately predicted the current crises, but also its projection and solution.

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