Basic Capitalist Principles

This interview with Noam Chomsky about the financial crisis is, as always, full of good points, interesting observations, and important reminders about recent history (link via Steve Mitchelmore). Much of it is familiar territory for him, adapted for the current situation, but like a favorite band's greatest hits, I love to hear the oldies again and again. For example, I've always been fond of how he emphasizes the role of the public sector in the economy, as he does here:

[T]he core of the economy relies very heavily on the state sector, and transparently so. So for example to take the last economic boom which was based on information technology — where did that come from? Computers and the Internet. Computers and the Internet were almost entirely within the state system for about 30 years — research, development, procurement, other devices — before they were finally handed over to private enterprise for profit-making. It wasn't an instantaneous switch, but that's roughly the picture. And that's the picture pretty much for the core of the economy.

The state sector is innovative and dynamic. It's true across the board from electronics to pharmaceuticals to the new biology-based industries. The idea is that the public is supposed to pay the costs and take the risks, and ultimately if there is any profit, you hand it over to private tyrannies, corporations. If you had to encapsulate the economy in one sentence, that would be the main theme.

There is, however, one aspect of this interview that troubles me. Talking about the IMF and how it operates as "the credit community's enforcer", Chomsky says the following:

If a loan or an investment from a rich country to a poor country goes bad, the IMF makes sure that the lenders will not suffer. If you had a capitalist system, which of course the wealthy and their protectors don't want, it wouldn't work like that.

For example, suppose I lend you money, and I know that you may not be able to pay it back. Therefore I impose very high interest rates, so that at least I'll get that in case you crash. Then suppose at some point you can't pay the debt. Well in a capitalist system it would be my problem. I made a risky loan, I made a lot of money from it by high interest rates and now you can't pay it back? Ok, tough for me. That's a capitalist system. But that's not the way our system works. If investors make risky loans to say Argentina and get high interest rates and then Argentina can't pay it back, well that's when the IMF steps in, the credit community's enforcer, and says that the people of Argentina, they have to pay it back. Now if you can't pay back a loan to me, I don't say that your neighbors have to pay it back. But that's what the IMF says. The IMF says the people of the country have to pay back the debt which they had nothing to do with, it was usually given to dictators, or rich elites, who sent it off to Switzerland or someplace, but you guys, the poor folks living in the country, you have to pay it back. And furthermore, if I lend money to you and you can't pay it back, in a capitalist system I can't ask my neighbors to pay me, but the IMF does, namely the US taxpayer. They help make sure that the lenders and investors are protected. So yes it's the credit community's enforcer. It's a radical attack on basic capitalist principles, just as the whole functioning of the economy based on the state sector is, but that doesn't change the rhetoric. It's kind of hidden in the woodwork.

My problem is the notion that this kind of activity is "a radical attack on basic capitalist principles". He notes that the rhetoric doesn't change, which no doubt refers to the rhetoric of the free market. Of course he's right about that. But I think it's incorrect to think that capitalism has anything to do with free markets. I know this seems counterintuitive, but that's only because we've had it hammered into our heads our entire lives that capitalism equals free markets equals freedom. So here, even Chomsky appears to have bought into that rhetoric to some extent. Capitalism is above all about forcing workers into the market. Where we should be able to have free access to food and shelter, as basic human rights, we are forced instead to contend with the housing and food markets; with both food and shelter subject to market forces, with once common land unavailable for use, enclosed, we are forced to sell our time, our lives, to others' in order to make the money necessary to afford food and shelter.

The state has always been necessary to protect the private ownership of productive property and to enforce the effective propertylessness of the rest of us. The dynamism of the public sector that he refers to above is simply another manifestation of this. He says you might instead call it "state capitalism" because of the massive state investment in the economy. This is fine, I suppose; some economists have called the old Soviet Union "state capitalist", too. It's all about control of productive capacity not being in the hands of those actually doing the work. It's about the removal of agency. In any event, to modify one of Chomsky's remarks, the last thing capitalists want is to truly compete in a free market. This is why, during the Progressive Era, leading figures like J.P. Morgan argued for and designed the regulatory apparatus. It was a disaster for them when they competed on the open market. Granted, there are numerous owners who do not understand this, and blather on and on about free markets, no doubt believing it, like lunatic Libertarians or something, but we needn't concern ourselves with them. (I hope it's obvious that none of this should imply that free markets are in any way desirable, anymore than capitalism is.)

I'm reminded, incidentally, of a passage from Marshall Berman's 1978 essay "All That is Solid Melts Into Air", collected in his Adventures in Marxism (I believe the essay was expanded into the later book by the same title). He is discussing Marx and bourgeois nihilism and Marx's apparent belief that the "bourgeois really believe . . . in an incessant, unrestricted flow of commodities in circulation, a continuous metamorphosis of market values." He continues:

If, as he believes, the members of the bourgeoisie really do want a free market, they will have to enforce the freedom of new products to enter the market. This in turn means that any full-fledged bourgeois society must be a genuinely open society, not only economically but politically and culturally as well, so that people will be free to shop around and seek the best deals, in ideas, associations, law and social policies, as well as in things.

This would hold true for communists and communist ideas, too. Marx further believes that thus people will choose revolutionary and communist ideas, because they are the best ideas, they will sell, and the revolution will be inevitable. My summary is simplistic, but still, it's evident that Marx, even as the great analyst of capitalism that he was, also bought into the free market rhetoric. Berman notes that:

In fact, in bourgeois history [the] principle [of unprincipled free trade] has generally been more honored in the breach than in the observance. The members of the bourgeoisie, especially the most powerful, have generally fought to restrict, manipulate and control their markets. Indeed, much of their creative energy over the centuries has gone into arrangements for doing this -- chartered monopolies, holding companies, trusts, cartels and conglomerates, protective tariffs, patents, price-fixing, open or hidden subsidies from the state -- all accompanied by paeans in praise of the free market. Moreover, even among the few who really do believe in free exchange, there are fewer still who would extend free competition to ideas as well as things.

A paragraph later, he says that "[a] more typical bourgeois pattern is to praise freedom when in opposition and to repress it when in power" and chides Marx for surprisingly "getting carried away by what bourgeois ideologues say, and losing touch with what the men with money and power actually do." Berman suggests that this is a dangerous problem, for if the bourgeoisie effectively closes off access to new ideas, then

it will be harder than ever for communism to take root. Marx would say that their need for progress and innovation will force them to open up their societies even to ideas they dread. Yet their ingenuity might avoid this through a truly insidious innovation: a consensus of mutually enforced mediocrity, designed to protect each individual bourgeois from the risks of competition, and bourgeois society as a whole from the risks of change.

In the climactic chapter of the first volume of Capital, "The Historical Tendency of Capitalist Accumulation," Marx says that when a system of social relations acts as a fetter on "the free development of productive forces," that social system has simply got to go: "It must be annihilated; it is annihilated." But what would happen if, somehow, it didn't get annihilated? Marx lets himself imagine this for barely an instant, only to dismiss the possibility. "To perpetuate" such a social system, he says, would be "to decree universal mediocrity". This is perhaps the one thing that Marx is utterly incapable of imagining.

I found myself, while dipping my toes last year in Marx, marveling at how prescient his analysis was. It seems even more relevant to current-day conditions than it did in his own day, and yet it seems he was unable to anticipate this key feature of our decrepit, collapsing system: its thoroughgoing mediocrity.