(opening speech given at the Marxist and Hayek society debate 18/03/2014)
Good evening Ladies and Gentlemen, comrades, brothers and
sisters, fellow Austrians
I must first start out by apologising to anyone in advance to
anyone who has come expecting an epic economics rap battle, this simply not
feasible and can’t be delivered. I would also like to thank the Marxist society
for agreeing to take part in this debate, personally I can’t stress how tired I
am of the lack of engagement across the political spectrum, we spend too much
time talking past each other in different rooms and sneering at each other when
the other person isn’t present instead of have the decency of debating face to
face.
I would like to start on a point of agreement. Watching the
not to recent debate between Marxist academic Alex Callinicos and FT editor Martin Wolf I
couldn’t help finding myself in broad agreement with a lot of what Callinicos
had to say. Orthodox economics is in crisis. Not only did it fail to predict
the crisis of 2008 but it also has no idea how to get out of that same crisis.
The very same policies that got us into the current crisis, printing money and
inflating booms in housing and asset prices, are being pursued with avengeance
to deliver us from that very same crisis, and needless to say the outlook for
the future does not look good.
We are supposedly entering into a recovery, but a recovery
for whom? Unemployment is still very high, youth unemployment in particular and
government debt is mounting. Thanks to QE we’ve seen a recovery of the stock
market but since this predominantly effects those few in our society who own
stocks and shares this is a recovery and further enrichment of the top 10% of
the wealthiest in our society and not much for anyone else. We’re either on the
eve of another great depression or we’re gearing up for a return of stagflation
which the Keynsian consensus is once again leading us to.
Capitalism if it is not already dead is dying and im sure
both sides would agree with that statement though taking it to mean very
different things.
To end that section unnervingly warm and close agreement
with Callinicos the question has to be asked and I don’t believe it was ever
answered by him as to what Marxist Economics has to other us in lieu of the
Keynesian mainstream.
In the field of economics Marx cannot offer anything of any
value. To put it bluntly Marxist economics is obsolete and has been for a very
long time. Any member of the Hayek society should be proud to point out that
the death blows to Marx’s economic system were delivered by the Austrian
economists who were the predecessors of Hayek. Karl Meneger and Eugen Bohm
Bawerk in the later part of the 19th and the beginning of the 20th
century exposed the fundamental flaws of Marxist economics, as they did the
whole of the classical school. Namely this was done by exposing the
contradictions of the labour theory of value and replacing it with the theory
of Marginal Utility.
This dealt a fatal body blow to Marx’s understanding of
capitalism and no Marxist economist has ever been able to respond. Reading
George Cathphores’ introduction to Marxist economics he quite candidly states
that no satisfactory response has ever been arrived at to Bohm Bawerk’s
criticism that the Labour theory of value, which marx dedicates no more than a
page to in Captial vol 1, is contradictory because it presumes that which it
seeks to prove, in short it explains the price of labour by refereeing to the
price of labour.
However Catephores doesn’t let this stop him, he goes onto
make an even more startling admission, saying that the solution to this problem
is simply to commit to the counter factual that the Labour theory of Value is
legitimate and is coherent. Meaning quite bluntly that in order to gain the
incites from the Marxist economic system you must first take a leap of faith.
No longer can Marxist economics be called scientific, instead its entering into
the realm of theology and metaphysics. Im not sure about the Marxist society,
but that doesn’t pass for a sound argument at the Hayek Society.
Though such a fit of desperation is understandable, because
without the Labour Theory of Value and against the rise of Marginal Utility
Theory, Marx’s theory of exploitation collapses, his theory of surplus value
goes out the window, his theory of crisis developing from either the tendency
of the rate of profits to fall or the inability of capitalist systems to reach
stable equilibrium due to the divorce between Use and Exchange values both go
down the proverbial toilet. Such an admission to the importance of the theory
was admitted by Rosa Luxemburg in her pamphlet on reform and revolution, where
she clearly states that if the theory goes then so does the entire system.
As if this wasn’t enough another hole was then soon ripped
in the economics of socialism by Hayek’s mentor, Ludwig Von Mises. As Mises
pointed out first in his essay of 1922 entitled economic calculation in the socialist commonwealth and then in his
book simply titled ‘Socialism’. A
socialist economy is technically impossible. I will repeat that, ‘technically
impossible’. Mises points out that the defining element of a capitalist society
is free and functioning capital markets or stock exchanges. It is here where
competition over scarce resources is battle out and prices produced and arrived
at, through the market mechanism.
Mises pointed out that without multiple and numerous
competing companies or individuals and instead with being replaced by one state
in ownership of the resources allocating them centrally for ‘social instead of
private gain’ no such prices can be generated. If there are no prices, except
those fashioned by beurocrats out of thin air, then costs cannot be calculated
in any meaningful manner, efficiency cannot be calculated and most basically of
all no economising can take place. Only chaos may reign, even if the organisers
at the centre have the best intentions in the world or where substituted by
angels, they cannot begin to match or approach the efficiency and productivity
of the market mechanism because in the words of Hayek the information conveyed
through the price mechanism cannot be centrally concentrated, and to do
otherwise is only the pretence of knowledge.
In light of this realisation its both hilarious and tragic
to read Lenin’s The State and Revolution where he reassures us that running a
modern economy is only a simple matter of ticking boxes and administration.
Consumer goods will be piled up in a big warehouse and the workers will come to
collect them. Is it surprising in the least how chaos and gross waist of
resources was achieved by the Bolsheviks and that in naively forwarding
themselves as the group of intellectuals suited to solving this unsolvable task
it only ended in authoritarian politics, as Hayek illustrates in his book the
road to serfdom.
So leaving the wounded Marx aside and coming back the Hayek,
the key to our current crisis in the light of the problem already mentioned is
to reinstate the one mechanism humanity knows has the capacity to organise the
extended order of society comprising millions of human beings. Lets bring back
the market.
Crucially we need to give it the room and freedom that it
needs to thrive. Most importantly of all this means brining back interest
rates. Lets stop perverting the price system by printing hoards of money to try
and magic our way back to growth on a tidal wave of false IOUs, which only lead
to inflation and malivestments, which we have so far showed ourselves reluctant
to liquidate.
For once lets allow the Austrain economists and the Austrian
theory of the business cycle guide us out of cyclical boom and bust,
manufactured by government and central bank expansions of the credit supply.
What would Hayek do in the current crisis? Lets start with two very basic and
brief recommendations with regards to two of our most important markets and
industries.
Lets make the housing market, the source of so much of our
woes a free market once again. Not only by not pumping it with cheap credit but
by repealing the mountains of regulation that stop new houses from being built
and is so complex that only a very few can navigate, securing them a government
backed monopoly. Lets get rid of government schemes such as Fanny May and
Freddie Mac or closer to home the Help To Buy Scheme which distort the function
of the market by backing unrealistic home ownership schemes which only lead to
disaster which is some how blamed on the free market
Lets make banking a free market once again. Lets break up
the government backed monopoly which is our current system of fractional
reserve banking. Where banks are given cheap credit from the central bank to
leverage themselves up to the hilt whilst providing little to no support for
the real economy instead inflating asset bubbles and then turn back to the
government when things go wrong and the market starts to fight back, expecting
and too often receiving a bail out. Lets
get rid of the encyclopaedia Britannica of regulation that makes Banking second
only to nuclear power in the complexities one has to overcome if you are a new
entrant to the market.
To conclude lets return to the free market. Lets not replace
crony capitalism and central banks with politburos and 5 year plans and the
concentration camps that inevitably follow
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