A Conversation about the Myths of Capitalism and the Coming Society
By Raul Zelik and Elmar Altvater
[The following chapter on economics published in: Surveying Utopia (“Vermessung der Utopie,” 2010) is translated from the German on the Internet.]
Raul Zelik, b.1968, works in the border area of literature, social sciences and political activism. Zelik was a guest professor for politics at the National University in Bogota. Elmar Altvater, b.1938, is an emeritus professor for political economy at the Free University of Berlin. His books on globalization have been bestsellers. Altvater is a member of the academic advisory council of Attac Germany.
The “free market” seems unable to solve basic social and economic problems – whether climate change, industrial over-capacity, unemployment or distribution of wealth. Is a society beyond capitalism even conceivable? In their conversation Raul Zelik and Elmar Altvater give a critical analysis of the present. Their common attempt to develop a utopian model of society starts from an idea of the economy that and is based on reason and includes ecological and social public interest
Raul Zelik: On first view, surveying utopia is a rather strange undertaking. A non-place, “a land that is not yet,” can hardly be measured. Perhaps where this land is not could be defined first. I believe the failed emancipation attempts in the history of humanity encourage something like a negative survey. One can read how it did not happen.
The time for this venture is good. The present crisis shows firstly that another policy is possible and necessary. We witnessed how quickly another strategy can be developed if the readiness exists. In the bank crisis, several hundred billion Euros were mobilized within a few days. In the years before we were told the financial resources necessary to eliminate hunger or provide African HIV-sufferers with medicine did not exist – although a fraction of the mobilized funds would have sufficed.
Thus changes of course are possible at any time if the will is there and the dominant interests agree. In other words, hunger and the African Aids-catastrophe are results of the dominant political will.
Secondly, alternatives become urgent. This is obvious in the crisis which is actually several crises. This is not a beauty contest between systems in dreaming up a “better world.” The survival of humanity and the sharing of humanity are put in question by the developments.
Elmar Altvater: I don’t know whether something negative can be surveyed. In “surveying utopia,” Daniel Kehlmann’s novel comes to mind. His novel makes “surveying utopia” artfully plausible. A theoretician, the mathematician Gauss, deduces the world and doesn’t need to leave his hometown, the peaceful Gottingen. Very differently, the empiricist Alexander von Humboldt crawled into every possible hole on the planet, waded through every puddle and climbed every summit to survey the entire world and bring knowledge out of it.
Science compiles this knowledge n a system and generalizes the rules of this system. This was and is authority. Science can establish the course of human and natural development in the past, present and perhaps future.
Raul Zelik: That is the hope.
Elmar Altvater: Utopia is not only a non-place, “a land that is not yet.” No, it is a full-blown contradiction. The concept of measuring must break down in the utopian. Therefore utopias have such a bad reputation. Progress seems to go from utopia to science. That was Friedrich Engels’ perspective. Wanting to measure utopia is itself a presumptuous utopian undertaking. This is shifting a little. A “new surveying of the world” is suddenly not entirely utopian any more. It has become the theme of realpolitik. The necessary new surveying is the activity of those think tanks that are paid for their scholarly advice to politics.
Political consultation is not our goal. The utopia that is central here has to do with another measurement – that appears in a text by Heinrich Heine from 1835. There we read:
“We have surveyed the land, weighed the natural forces, calculated the means of industry and behold we discover that this earth is big enough to offer adequate space to build the huts of their happiness, that this earth can feed all of us reasonably well if we all work and don’t want to live at the expense of others and that we don’t need to expel the poorer class to heaven.”
We people – the nine billion that we will soon be – could all have a reasonably bright life but must do something for that and simultaneously refrain from many things. We must reorganize the earth and spruce it up ecologically so to speak. Nature was ruthlessly exploited in the few centuries since the fossil and industrial revolution. We must prevent climate catastrophe and ensure that the intensifying battle for raw materials does not result in a bloodbath. We must prevent financial- and economic crises further aggravating the social oppositions.
In an interview, the English historian Eric Hobsbawm recently voiced the fear that the crises of capitalism could lead to a great and extremely bloody war. I hope these were only the fantasies of an old man who lived through two world wars and the “age of the extreme.” However I fear Hobsbawm could be right with his scenario.
Thus the standards for a utopian project are clear: enable people on earth to live reasonably well and not banish them to Paradise any more.
Raul Zelik: What is central is not only “bread,” the basic provision of people, but something that could be described generally and concisely with the term happier life, a life in which communication, work and social relations have another rank and substance.
Elmar Altvater: Right. Utopias can be presumptuous and not do justice to reality. We should be aware of this double meaning. One cannot simply escape the danger. Obviously we can be presumptuous when we speak about something that does not exist or does not yet exist.
Thus we3 need to reflect about utopian projects and answer to what extent these projects are somewhat realistic. We must size up whether they are fit and make possible a good life for people – in the ecological, social and political regards. Whether they enable the basic needs of all people to be satisfied with the preservation of nature, whether they lead to a rule-free world in which people can form their life and their working activity themselves and are not subservient.
We must attempt this even if we know that every experiment to realize these goals will meet with harsh political resistance.
Raul Zelik: Every utopia mirrors existing conditions and develops as criticism of those conditions. Before we speak about utopia, we should first try to survey the conditions in which we live. Let us begin with the term economy.
Elmar Altvater: Agreed.
Raul Zelik: Dietmar Dath, one of the few younger German-speaking authors who takes seriously anti-capitalist positions, published the book “Machine Winter: Manifesto for Socialism” in 2008. There he says:
“A society is obviously disgusting that gives running shoes with inbuilt computers to its top athletes while refusing co-payment for wheelchairs to senior women and tolerating a care emergency of which hordes of apes would be ashamed. A society is obviously repulsive that allows all these things in its horribly apolitical winner terrains. I won’t speak about that. Morality is a matter of luck and assumes covering the most important essentials. One usually has other concerns. All this is not rational and therefore cannot function. Whoever denies the possibility of ordering things better is not evil but either lazy enough to deceive himself or suffers in this negativity from a birth accident. That seems to me a good starting point. In the first place, the system in which we live and which lives through us is immoral. It is unreasonable, irrational and inefficient.
Elmar Altvater: This is well-known since the beginning of the middle class. One of the first who pointed to this unreasonableness or stupidity was the physician and philosopher Bernard de Mandeville. In his “bee fable,” he showed that the system can only exist when people commit small crimes and gross nastiness. Corrupt and disgusting conduct keeps the economic cycle going and increases the “wealth of nations,” not virtue. Where ther4e is no crime, no locks are needed. Where there are no locks, there are no locksmiths and where there are no locksmiths, there is no work. In other words, crime is necessary so this economy can carry on.
Very beautifully and very ironically with many examples, Mandeveille showed how public virtues can arise out of private vices. A society that needs private vices – the repression of the other – can only be unreasonable. Besides Mandeville, we can find many other examples from literature and science that critically decry the irrationality of capi8talism.
Raul Zelik: The market economy is a paradoxical system. The market exists because we need others and society. No one can live from the fruits of his specialized work. No baker can eat a thousand loaves a day. An office worker doesn’t get any practical value from the documents that he or she worked on. Our work first has a utility or gives a benefit through its socialization. Paradoxically the socialization of our life functions through the market where we meet as rivals in predatory wage battles against one another. Thus division of labor is based on cooperation while the market is based on competition and struggle. One could argue the market functioned very well in the past for a long time. Economists explain that competition and “severe budget restriction” – the threat of going bankrupt – prompted market actors to act frugally and efficiently. However the wasteful side of the market appears in a drastic way in crises. In the last5 months, assets in the billions were destroyed. Produced goods are destroyed – including food – to maintain the prices of unmarketable goods. Finally, climate change is a clear sign that capitalism will destroy our foundations of life. In this regard, the economy with which we are involved in totally uneconomically.
Elmar Altvater: The first one to systematically criticize this was Karl Marx. Vance Packard continued this in 1960… The system in which we live and which lives through us is unreasonable, irrational and inefficient. We could rewrite the forgotten cultural-critical book about “planned obsolescence” (“The Waste Makers”) in which Packard lists many examples of waste and the intentional production of garbage within a capitalist market economy. Expecting rationality from the market is naïve; disappointment is certain…
Why is a market economy wasteful? A market economy is wasteful because its actors follow a micro-economic rationality that is not true for macro-economic reason. We see this very clearly in the current financial crisis. Rational micro-economic conduct causes a macro-economic catastrophe. When an individual bank receives credits with higher interests to start businesses and thus becomes indebted, that is completely obvious micro-economically. The lower the capital holding requirement and the higher the sum of conferred credits, the higher the profits. But when one adds this up for all banks in Germany, one comes to 1 trillion Euros of uncertain foreign assets of banks. That is more than double the capital of these banks, 360 billion Euros. In the US the relation is the same while the absolute amounts are much higher.
What is rational in micro-economics is irrational on the aggregate economic systemic plane because the system altogether becomes endangered. The profit of the individual bank comes about through a business model that can also cause bankruptcy for the whole system impacting the individual banks. Individual banks can fulfill those demands that bring profits. “Originate and distribute” is the sesame, open yourself to dream profits. Repression of the othe4r – necessary to produce a public virtue – means economic profit can only be unreasonable…
Create securities, have their value confirmed by a rating agency and then distribute the papers worldwide. Some global player who is dumb enough to take them in his portfolio will be found. However the banks and funds alone cannot provide the income streams to really meet these demands. That can only happen when there is work.
Raul Zelik: That is taught in every introductory economics course. Manage3ment benefits and macro-economic benefits are not identical. That is the reason why the state has an important role even in the most liberal economies. For example, individual entrepreneurs are afraid of massive investments in the infrastructure when they cannot amortize or amortize too late. As another example, a new power plant has undoubted benefits on the macro-economic plane since it reduces energy costs. Micro- and macro-economy and operational- and aggregate economic rationality diverge. Why is this hardly mentioned in the debate?
Elmar Altvater: The (neo-) classical thesis is that the invisible hand of the market ensures that reasonable action based on self-interest brings the greatest aggregate social benefit. This was drummed into the heads of students of economics for generations…
Raul Zelik: What defined the economy in the last decades was obviously not economic.
Elmar Altvater: If one starts from Marx, economy has a double meaning. First, there is the material transformation of matter and energy, the practical value sided. Nothing would function without influx of energy, nowadays we must say without fossil energy. That is the material energetic side of the economy.
Secondly, there is the value-based monetary side in contradiction to the material side since the demands for monetary production are boundless. The money supply can be increased very easily nowadays. One need no longer dig in the earth to extract gold. Paper scraps are not needed any more. Money can be produced immaterially in the form of bits and bytes. On one side, we obviously face limits, for example in fossil fuel and in the receptiveness of the environment as to toxic substances. We cannot fade out the social relations to nature that are interwoven with the economy and cannot be separated from the economy. Over against this is the enormous dynamic of the value-based monetary economy that is only defined by the self-interest of the actors. These interests are separated from the material side. In his treatise on “ecological communication,” the system-theoretician Niklas Luhmann showed that fading out material-energetic processes leads to absurdities. Everything that has to do with payments and non-payments belongs to the economy. Therefore the price of a barrel of oil is economy but not the pumping out of oil from the earth.
Raul Zelik: The central national economic numbers have little to do with the economy and budgets. Consider the growth rates of the gross domestic product. A serious accident can be reflected in increased growth in two ways – through repairing the way and the medical treatment of the injury. Here it is clear: growth need not have anything to do with social well-being. Rational economic co-efficients must also consider very different aspects: life expectancy, access to basic goods, reduction of ecological burdens and so forth.
Elmar Altvater: If this could be solved with numbers, the problem would be simple and would lose its drama. Whether the social relations to nature and the conditions of life are formed corresponding to the numbers is crucial, not how something is defined. To return to the theme of surveying, we must not only measure and evaluate something with numbers, as for example the per capita emission of greenhouse gases but form life and work so that we live “in moderation” in the Aristotelian sense.
For a long while, the UN Development Program has tried to represent prosperity with the alternative indicators of the Human Development Index. Others attempt to define happiness with the help of numbers. An economy should actually produce “happiness.” More exactly, it should make happiness possible for the greatest possible number of people. By the way, this is also a leading idea of the US constitution which emphasizes the pursuit of happiness. Nicholas Georgeseu-Roegen, the most important advocate of the thermo-dynamic economy, asks why people unavoidably increase entropy – produce waste products, waste water, waste air etc. He answered with the pursuit of enjoyment of life. That the damage to the environment in a capitalist society has something to do with the search for profit did not occur to him.
Thus the attempts to measure happiness, joy and well-being are rather frustrating since the indicators are useless as long as the social forms are not changed. One can demonstrate in alternative numbers that the countries with the highest per capital gross domestic product are not the countries with the greatest sense of happiness. The indicator of human development does not agree with the economic output – measured by per capital income.
Changing the social forms so other goals of economics are considered is central. The old question about another solidarity socialist economy – whatever that may be called – follows from that. This question must be raised again and again because new answers always have to be found.
Raul Zelik: Interestingly socialist economists now start from the same numbers. The socialist movement is very enthusiastic for higher gross domestic product and ruthless growth. New economic numbers would change nothing but make clear where the journey must go. Neither capitalist nor state socialist accumulation has anything to do with social well-being.
Elmar Altvater: That command socialist societies use the same economic numbers as capitalist countries is really another reason for their breakdown. It was the attempt to move on the same track as the developed capitalist forerunners without passing the train of capitalism. The economy must develop in another direction and not be oriented in capitalism. Only in that way can an alternative come out of socialism. That is an important lesson for all future experiments that go beyond capitalism. The goal cannot be simply growing faster and better as happens anyway under capitalist conditions. Socialism is not characterized by quantitative differences; it must represent something qualitatively different.
Raul Zelik: Over thirty years ago the Swiss economist Hans Christoph Binswanger said the growth rate must be limited. Danielle and Dennis Meadows, environmental researcher and economist, said something very similar in their 1972 study “The Limits of Growth” for the Club of Rome. Binswanger is not a leftist.
Elmar Altvater: Certainly not.
Raul Zelik: Josef Ackermann, the head of Deutsche Bank, gained a doctorate with Binswanger and still gives ceremonial addresses for him. One can see how powerless is the economic discovery considering the real power relations on the market. Nothing contradicts Binswanger’s thesis on the limitation of growth as much as Ackermann’s profit goals that break all natural and social limits…
Binswanger says high growth puts in question the ecological foundation of the economy altogether. On the other hand, he also defends the thesis – if I under5stand him rightly – that capitalism needs growth. What does this mean when growth destroys society in the medium term while capitalism cannot manage without growth? Is this a systemic limit of capitalism?
Elmar Altvater: Yes, I think so… This can also be explained with the above-mentioned double character of the economy. Nothing grows on the material-energetic side. Only qualitative transformations occur there. We use the energy that we bring out of the earth and burn in the form of coal and crude oil. We leave behind pollutants in the sinks of the earth. On balance, nothing grows. Only entropy increases. In other words, the used energy cannot be used a second time. The thermo-dynamic laws cannot be transcended. A qualitative transformation takes place, not always as an improvement as we see empirically in the changes of the conditions of nature. A Polish proverb illustrates this fact: you can make soup out of an aquarium but not an aquarium out of fish soup.
A capitalist economy needs a surplus value or profit. This system logic cannot be abandoned as long as capitalism is accepted as an institutional system. A surplus must be produced under existing conditions. In the material-ecological sense, this is not possible because only material and energy are transformed.
Aristotle who coined the term oikonomia distinguished between household s and the money economy and propounded the thesis that monetary surpluses are an absurdity because they damage society and nature. Through quantitativism and money, one could say with Aristotle, monetary relations are created that divide society. In Aristotle’s time there were debtors and creditors, not workers and capitalists. He saw that such oppositions could lead to civil wars. In his thesis on Athens’ constitution, he described Solon’s greatest achievement as resolving the basic conflict between debtors and creditors, not that Athens had a constitution.
This also happened in the Jubilee year documented in the Old Testament and demanded by Christian solidarity groups for the millennium in the year 2000. However that did not happen. The resistance of the banks and their political advocates was too great. Whoever wants to cancel debts reduces demands or financial assets.
Let us return to the theme of growth… There was no growth or hardly any growth before the rise of the industrial revolution which was also a fossil revolution. There was no growth before capitalism – before the separation of paid labor and capital, before the transformation of fossil energy into labor energy, before the social principle of having to produce a surplus product and a surplus value… Thus there was a “stagnation pressure” for a long time, not a growth- and innovation-pressure.
Even in pre-industrial times, there was the belief in riches out of nothing, in a land of milk and honey of endless need satisfaction and growth without time passing away. Hans Christoph Binswanger emphasized this in his beautiful theoretical-economic interpretation of Goethe’s “Faust.” As long as money consisted of the natural substance gold, the multiplication of wealth was bound with travail and suffering and gold remained limited like all other materials scraped from the crust. The magic of money began with paper money that can be multiplied almost endlessly and riches with it. This bestows power and makes possible “triumphant growth” – as the US economic historian Richard Easterlin says. To savor this triumph, Faust made his pact with Mephistopheles.
Raul Zelik: When capitalism first overcame the stagnation pressure, it was a marvelous system. In other words, not everything was bad in capitalism! Who wants to continue operating grain mills by hand? The dynamic triggered by the accumulation pressure makes possible rapid development and relieves life incredibly. This development – as Dietmar Dath stresses in his socialism treatise – could relieve life tremendously when this development is used to benefit society and not for the purpose of more accumulation.
Elmar Altvater: Technical developments should not be equated with growth dynamics. Technical developments have undoubtedly relieved life. However growth under capitalist conditions is a very ambivalent accomplishment.
Driving in a car from A to B is obviously pleasant. But this is not pleasant when too many want to do this. If too many are underway in their cars, we stand in a gridlock and the automobile becomes immobilization. We are social beings. This becomes clear even to the most strident individualist or libertarian socialist when we are caught in a gridlock… because many strive for enjoyment of life.
Thus whether a development leads to relief depends strongly on outward social conditions. Many manufactured goods are positional goods. The use of these goods is determined by how others or many others use them. Little houses in the country only exist when there is greenery. If too many little houses are built in the greenery, the greenery disappears and we find ourselves in a dreary row house development. This is another example how individual rationality can change suddenly into social irrationality. We are social beings but are accustomed to make our decisions individually as though society did not exist. We have forgotten social decisions affecting our individual conduct are made in a collective process. Liberalism and neoliberalism have led to a mutilation of the sociality of our individual existences…
Consider the middle class economists of the 19th century, for example John Stuart Mill. Mill appreciated the capitalist development dynamic. However from a certain point, he noticed having more time “for contemplation” was crucial. Growth means acceleration. From a certain moment, this becomes annoying because it produces busyness. Middle-class thinking occurred in agrarian conditions. The people lived in and with nature. They knew growth takes time and ends sometime or other. Trees do not grow to the skies. Some time or other children stop growing and become adult. It would be te3rrible if they did not. This led middle-class economists like John Stuart Mill to the conviction that capitalist growth is important but reaches a limit some time or other when growth is not desirable any more and one must find one’s way back to “contemplation” to have time for oneself and nature. That was obviously a luxurious idea unattainable for proletarians. Proletarians were always marked b y the rush of the workday. If they were not, their situation was even worse. They became unemployed and had no income.
The modern growth discovery has a very short history. It first arose after the First World War. Marx was not a growth theoretician although he created its foundations. He showed how the different divisions (investment goods production on one side and consumer goods production on the other side) must develop in “expanded reproduction” or growth so the whole stays in an – always precarious – balance. He explained the conditions of such an equilibrium and demonstrated that this balance hardly appears in capitalism but is interrupted by crises of accumulation.
Growth theoreticians pointed this out after the Russian Revolution. If I see rightly, the first growth theory was developed in the young Soviet Union by the economist Stanislaw Strumulin who used the term “human capital” central in neoclassicism and by Gregory Feldman who devised a growth theory for the Soviet economy on the basis of Marx’ reproduction model.
Raul Zelik: This is Lenin’s revenge, so to speak. Capitalism perishes in a growth ideology for which Soviet economists created the foundation…
Elmar Altvater: Not entirely. Growth pressure was part of capitalism before that. But the growth theories seem to have developed for the first time by Soviet economists. These theories showed that the two “divisions”, investment- and consumer-goods production, must grow in a proportional relation to each other and that a planned socialist economy is more dynamic than crisis-shaken capitalism.
Raul Zelik: The Soviet Union failed phenomenally in this planning. Consumer goods were always a scarce commodity.
Elmar Altvater: A mathematization of growth processes occurred at that time. All this should have led to overtaking capitalism and the developed states with a catch-up socialist accumulation. Command socialism submitted to or was subjugated by an accumulation pressure.
In 1929 an interesting development supervened. The capitalist world collapsed in the years after the stock market crash and the first five-year plan was implemented in the Soviet Union. While double-digit growth rates were posted in the USSR, the capitalist economies shriveled around 20 or 30 percent. The Keynesian theory gained acceptance while similar concepts were developed independent of Keynes by other economists. Overcoming stagnation was central. On this background, stagnation theoreticians like the US Alvin Hansen (1887-1975) devised growth theories in the 1930s and early 1940s. Safeguarding the Soviet Union’s advantage was central. Today this is often forgotten. Up to the 1960s, the socialist camp grew. From 1945, several states in Eastern and Central Europe and Asia appeared alongside the Soviet Union. The growth rate was the success indicator in the rising system competition. Since then, growth became a fetish-like term.
Raul Zelik: Let us return to the question how a society can develop its production and labor withou9t growing. Stagnation is obviously not desirable. That technology, labor organization and knowledge continue developing is tremendous. Therefore growth criticism – when it is intelligent – may only be directed against the pressure to exploit labor more and more and expel more and more volumes of goods and services, not against innovations.
Let us grapple with the basic ideas of economy. We spoke about growth as a fetish. There is a second great social fetish: work. Unions, businesses, parties and media all play the same tune. Work must be created. Everyone who reflects a little about this must object that economy actually means the reduction of necessary working hours, in other words the least amount of work involved with the greatest possible well-being. In this context, the problem is then raised of justly distributing income and disagreeable work..
This also seems to me an interesting paradox. Capital is ultimately based on concretized labor. From the perspective of capital, there should be as much work as possible since capital increases accordingly. However capital with the help of rationalization and automation constantly reduces the socially necessary work…
Elmar Altvater: Yes, Marx referred to this paradox…
Raul Zelik: …and the unions that should as representatives of workers and employees should ensure there is less work propagate in their costly publicity campaigns: Work! Work! Work!
However – in times of crisis – the demands go in the opposite direction. Capital fulfills an historical mission when it reduces necessary work. How the remaining work can be divided up sensibly and in solidarity and a dignified income for all secured must be discussed. The 30-hour week could be a theme! The term employment is insane. The social-therapeutic organization of lifetime is vital!
Elmar Altvater: A passage from Marx’ “Grundrissen” of 1857 occurs to me in this connection. In the 1953 edition, there is a sentence that I have not forgotten (laughs). The production of free time is not defined there as the central goal of capitalist economics. Today one would say: time prosperity is the goal of an economy of happiness, of an economy that puts humans and not capital exploitation in the center.
But this raises a fundamental problem. Such a redefinition of the economy would amo9unt to a stripping of capital’s power. Capital means exploitation of labor power. If labor power avoids this exploitation, the society changes in a radical way.
The French philosopher Andre Gorz discussed this in detail 20 years ago and distinguished between autonomous and heteronymous work, between self- and foreign-determined work. He described that work as heteronymous that one does not do gladly but must be done. It is certainly more pleasant to sit in a café and have a good time with people than to pick up the trash left by these people in the café. A balance must be found between autonomous and heteronymous work. This is a civilization process that cannot be decreed. People in society must agree about this.
When I abandon work as a principle, I put capitalism in question. That is the presupposition. Only through work is that surplus value produced that can be distributed as profit for businesses and as yield for speculators and bankers. Otherwise all this does not happen.
Raul Zelik: Why are unions so incapable of making this clear?
Elmar Altvater: To pass over to another organization of work and another relation of working hours and non-working hours, one rattles an institutional framework. This contradiction has always led to acknowledging the institutional framework and bringing out the best within the framework. This is the typical contradiction between the revolutionary discovery that the fundamental conditions must be changed and the reformist praxis that accepts that this institutional framework cannot be simply “abolished” by decree.
When we act against capitalism, we are within capitalism and not somewhere on the moon. We cannot simply move out of the spaces that are penetrated capitalistically. The common location in social space is the basis for a variety of social compromises, for example the cooperation of unions and business management. Militancy first arises when the cooperative course breaks down. Whether the militancy is progressive depends very much on the local, regionally specific culture and on the goals.
Raul Zelik: Although we are captive in the capitalist reality, we must constantly try to move ou8t of it. There is only a fundamental change when one thinks and acts beyond the existing conditions.
Back to our original question. We have to make clear that the real existing economy does not deal sparingly with resources and lifetime. What is the “economy” generally? Is “economy” identical with capitalism?
The differentiation in politics and economy was entirely unknown in feudalism. Whoever ruled appropriated immediately what the serfs gained. Political and economic rule coincided. Thus one could assume economy only had a meaning in the context of capitalism.
Elmar Altvater: For Aristotle, economy was housekeeping or domestic science that is guided by “good family management” and ensured the provision of the family. This meant sowing and harvesting occurred at the right time, that tools, instruments and implements were there, repairs took place etc. Aristotle distinguished the money economy that breaks the framework of housekeeping and brings about a social division into creditors and debtor5s. In the following centuries, this distinction was adopted with the proviso that the money economy could not increase uncontrollably. With the interest prohibition, people tried to go back to Aristotle. According to the perspective of the agrarian world, cows have calves but money does not have any young.
The Catholic Church adopted this attitude in the canonical interest prohibition. It continues up to today – at least formally – in the Islamic prohibition of interest which also goes back to Aristotle.
In Europe, this prohibition fell first in the 15th century under the onslaught of capitalist forms in upper Italian cities and with the colonial trade – the plundering of all continents and imports of the robbed gold and silver from Latin America above all. Money transactions grew at breakneck speed. The Italian banking houses, the Augsburg Fuggers and Weller and later the houses in Antwerp, Brugge and Amsterdam gained in significance. The “hard budget restriction” of interest was brought into the world. The capitalists who accepted credits now had to submit to that restriction in amassing profits and realized surpluses.
At the beginning of capitalism, the interests were much more volatile than today. They fluctuated intensely simply because less was traded and the money- and credit markets were not yet developed. They were usuriously high. With time, the interest fell to a level that was below the profit rate, at least in the normal case. Thus businesses could become indebted, gain a profit with the credit and render debt service somewhat securely.
With time, surplus value production increased in importance. This ultimately culminated in the finance-driven capitalism at the end of the 20th century.
However all this can be interpreted differently as in Marx’ “Grundrissen” that was later taken up by Rosa Luxemburg. According to this, According to this, the economy should be broken up into an economy of time. At some point, the economy itself became invalid with the increased purchasing power and the reduction of necessary working hours. What Marx called the “kingdom of freedom” in a utopian sense would begin, a kingdom free from practical ecological constraints.
In this connection, the term economy means encounters in the daily routine, namely “economic practical constraints.” What increases “competitiveness” is generally understood as economy. That is the standard by which everything is measured. Forced conditions occur here as an economic law proclaimed daily by the high priests of the modern age, the economic experts. In this way, economy is reduced to a repetition of unquestionable compulsory laws.
What did not always occur need not always occur. The “forced laws” are fetishes. The word fetish comes from the Portuguese fetticio. This means botched-up jobs and miserable efforts can be changed.
Raul Zelik: What does economy mean now? Is economy a discipline that only exists in capitalism?
Elmar Altvater: The modern concept of economy had its origin in the 16th and 17th centuries. In this time, two things happened. Firstly, a boundlessness of economic endeavor was manifested. With the voyages of discovery that quickly became conquest expeditions and predatory attacks, the societies of the early modern age broke through all spatial barriers. At the same time, the middle class national state formed – at least in Europe. Limits were set. The state area was defined. Customs were introduced. Citizens and in some countries subjects appeared on the scene and had to act in the legal limits. The state also limited itself over against society with the 1776 American constitution. The “Westphalia order” that regulated the borders of nation states in an international system was established after the Thirty-Year War beginning in 1648. Thus a) an independence and enclosure of the economy, b) the development of limited nation states, and c) the formation of an international political system among these states occurred.
In this context, independence in the scientific realm resulted. Up to the modern age, there was no separation between economy and politics. Philosophy and theology were pursued. What we describe today as economy had its place in rules of conduct. You can look this up in Luther.
Then a differentiation and specialization occurred that later was known as “political economy” through the separation of economy and politics. The economic relation was always understood as a work- and money-relation by the first theoreticians of this branch of learning. With John Locke, labor was the basis of ownership and ownership was the foundation of exploitation. With Adam Smith, a division of labor was emphasized, not individual work. This division of labor was the basis of the increased productivity that enabled the wealth of nations to grow. In Adam Smith’s “fifth book,” the state emerged that acts as a regulator for what the “invisible hand of the market” could not control, what we describe today as public goods, infrastructure, universal rules and so forth.
Thus the “economy” was “dis-embedded” more and more from society and politics. However politics and economy were still interdependent for the early middle class economists – like David Ricardo. This connection was first dissolved in neo-classicism in the 19th century. A concept of economy as a rational decision system arose. Josef Schumpeter described the beginning of the 20th century as “methodological individualism.” The individual who had to rationally master a scarcity problem was the starting point of theoretical discourse. How must goods and services be chosen with a limited budget so that needs are optimally satisfied? The theoretical rational principle of decision is in effect with the production of goods and services. The limited production factors must be combined so an optimal profit can be realized.
In this way, the economy became a decision system that has hardly anything to do with the political and social system, the system of work, the division of labor and interaction with nature. It is “dis-embedded” from nature, society and politics. All unintended side-effects of intentional rational acts are regarded as “external effects” that distort the price system. The joke is that “external effects” can generally only be externalized – informationally – in the market mechanism. The burden of nature, for example, strikes back again over a longer time period. The consequences strike the “externalizers” – like climate change now in the form of water shortages expanding wildernesses, heat stress and thunderstorms causing tremendous strains and costs. In other words, the “effects” ensure that decisions rational at first prove irrational at the end.
To prevent this, external effects began to be internalized. In climate policy, the most absurd calculations were introduced to trade CO2 emissions on the market. “The prices must say the truth,” the doctrine declared. At best the market mechanism provides information that makes rational decisions possible. However the concrete damages to nature are irreversible and usually irreparable. The problem is that the CO2 emissions are now expressed as costs. When others pay for my emissions, I have no reason to reduce them.
Raul Zelik: In your book, “The Future of the Market,” you argue the time-horizon of the market has to be limited. We witness this today in connection with the bird- and swine flue epidemic. For a long while, it was known that industrial farming in which animals are herded together and massively fed with antibiotics is a breeding ground for new germs or pathogens. Therefore industrial farming is only “more efficient” than traditional farming because it can shift incalculable epidemic costs to the general public and need not bear them.
The real tasks of the economy still lie ahead. When a discipline of economizing aims at frugal, reasonable and efficient relations with resources – above all with labor and nature -, then no economy would exist.
Elmar Altvater: Profit is central in the capitalist economy, not economizing or oikonomia in a domestic science. Profit is at the center and becomes the criterion for evaluating investments. The profit rate, Marx would say, determines investment decisions. The new Germany of MBA graduates and shareholder value defines what’s what. When more production can be gained with genetically-modified organisms, with seed from Monsanto laboratories or the pesticides of Bayer than in farming that leaves nature in its natural state, it is clear where investments will go. The problem is the time horizon. After the green revolution in Punjab, India, the yields temporarily increased. Today the soil is barren, the groundwater is polluted and the yields – for a “long time” – have been declining again. This is an ecological, social and human tragedy. Whether the capitalist economy can guarantee a good life for people is clearer in farming than in industry.
No shortage in labor power exists now. Labor power became abundant in the course of the globalization of the past decades. A labor market arose with a supply that can be filled from nearly all world regions. The result is the increase of informal and precarious work identified by all international organizations. This work is characterized by low incomes, trifling social state protection and weak unions. The consequence – and this can be documented empirically in all countries – is that the share of wages and salaries in the national income has drastically declined. That redistribution from bottom to top is often criticized in connection with the financial crisis. This redistribution has consequences. It has reduced demand in crisis-shaken economies or, as in the US, led to a massive increase in consumer credits. What was the reason for the enormous increase in consumer credits? With the help of indebtedness, wage-earners were first able to bring their living standard to an acceptable level that could not be financed with their wages alone. The banks made this relatively easy since they could cheaply refinance for a long time and could take money in China on very convoluted, non-transparent ways since China was ready to build reserves of $3 trillion. With this enormous amount, poorer China gives credits to the much richer consumers in the US.
Raul Zelik: I’d like to return to the theme of labor. You said no shortage of labor exists. Nevertheless reducing the necessary work is economical.
Elmar Altvater: That could be the goal, an economy of time that expands free time. This would not be empty time but time in which one develops oneself. This is what John Stuart Mill called “contemplation” in his sympathetic idealism. However work-free time today is filled by the culture industry in a way in which people remain alienated or foreign determined. At this point, we must start with culture criticism that raises such questions.
Unlike labor, an obvious shortage prevails in nature. A distinction is made in English between scarcity and shortage. Goods must be scarce or made scarce when economy is understood as a rational decision system as in the mainstream today. Only then is there something to decide economically. In capitalism, scarcity must be produced again and again.
Raul Zelik: Here is an amusing point. Shortage existed in almost all goods in state socialism in which scarcity was unnecessary. In capitalism where shortage seemed overcome in many regards, there is artificial scarcity so profit can be gained…
Elmar Altvater: Nature is always ultimately limited. Shortage prevails in many resources because material- and energy transformations cannot be reversed. The effect of this natural law is intensified because we use natural resources very wastefully, not intelligently. Different raw materials are running short – in the medium term even if not in the next five to ten years. For example, cell phone production depends on metals like Colton that are only available in very limited quantities. Oil is also running short so a frantic search for other sources of energy is underway in the automobile industry which is having a hard time on account of the financial and energy crises. In the past, no solution was in sight. New and serious problems are raised. Since the middle of the 1970s, Brazilians have operated in the framework of the Proalcool program with ethanol and biodiesel as substitutes for fossil fuels. They can show some successes since the oil price has risen and bio-fuels can be produce4d profitably. Massive regions are transformed into mono-cultural plantations. This agriculture fills car tanks, not hungry stomachs. There is much too little reflection about alternative models of mobility – a mobility that manages with out cars or with fewer cars.
The economic relations with shortage could react with foresight to the challenges resulting from natural conditions. Nature is not a cornucopia or horn of plenty that can be used boundlessly. In the current economy, this kind of shortage hardly plays any role. Scarcity is the central category, not shortage. This is expressed in the categories of neoclassical theory. Everything is defined as capital: industrial, financial capital, human- and cultural- , knowledge- and natural capital. There cannot be shortage in this capital world because capital is presupposed as substitutable. If resource shortage prevails, financer capital must be invested to throw the resources on the market. Everything is a question of price.
Raul Zelik: On the other hand, scarcity is indispensable for capitalism because what is not scarce has no price and no capital can be realized without a price…
Elmar Altvater: Right. This is clearest on the food markets. Every year thousands of tons of food are destroyed since otherwise the supply would be too great and the prices too low. This can be seen with water. There is scarcity since public commodities can be changed into a private good, bottled in plastic containers and sold as a good. Markets, prices, goods and profits are created from which water corporations live. This is a typical construction of scarcity. For a long while, air and atmosphere were not sold as goods. Now the right to pollute the air has been changed into a commodity in the scope of climate change policy that is traded on emission-exchanges in the form of pollution certificates. A profit or yield must always be included in the price.
Negotiability assumes ownership rights in the respective commodity. For John Locke, labor had to precede ownership. Today the state creates ownership rights. The right to pollute the air and receive this right in codified form to trade on the exchanges – only comes about through sovereign acts. There is no natural necessity for this. Goods that are not boundlessly available (in which shortage generally prevails measured by the needs of people or living beings) can be dealt with differently than in the form of exchange trading. Take the example of water. Humanity had to manage with this shortage again and again in its history. There are rules of use wherever water is not available in abundance. The mineral springs are distributed; there are irrigation systems and so forth. In “authoritarian Oriental despotism,” as some describe this, the state sets and carries out allocation quotas in an authoritarian way. There are thousands of examples for this. In a country like Germany, water cooperatives exist that allocate water either with market- or scarcity prices or through state dictation.
The market-based rule that we regard as a foregone conclusion today is generally not “normal.” However in a bizarre way this nonsense is followed by almost everyone – even by the environmental groups Greenpeace and German Watch. All possible leftist groups are involved in the emission trade…
Raul Zelik: Pottering about in a basically irrational system should make us increasingly skeptical. However it could be sensible in this case. If the emissions trade leads businesses to consider the limitations of nature in their operational calculations so external consequences are internalized again and the environmental strain is reduced, that would be a good result.
Elmar Altvater: First of all, the distribution principle speaks against trading emission rights. Only customers with money count on the market. Whoever is rich may pollute. In this way, persons or citizens who have a fundamental right to goods like water and air are replaced by consumers. Their right to partake is determined only by the amount of money they have. A justice- and democracy problem is obviously present. Secondly, there are efficiency problems. The emissions trade has proven to be an absurd catastrophe in Europe, a catastrophe because it does not function and makes no contribution to reaching the Kyoto goals, reduction of CO2 emissions and absurd because everyone with a little insight could know in advance that this result outcome would occur. Nature cannot be saved by changing the right to pollute into a commodity traded on the Leipzig power supply exchange.
There is a beautiful formulation in the 2005 Durban declaration of African NGOs: In an atmosphere of privatization, they privatized the atmosphere. That alone was the reason for trying to stop climate change through market laws. The atmosphere is also changed into private property when everyone speaks about privatization and its political advocates in all areas become the crucial models.
This obviously cannot be efficient under today’s conditions. The financial markets also take hold of this market. In plain English, what financial actors deem profitable is done, not what is necessary for environmental reasons. Many well-meaning ecologists believe this is the trick or cunning of history that the private interest in the highest possible profitability can also be used for protection of the environment and the climate. But many necessary things are not profitable. No money can be earned by not producing anything – even if this is absolutely commanded ecologically or socially.
Raul Zelik: Many would object that wind- and solar investments could be profitable.
Elmar Altvater: That is true. Under certain presuppositions, the profit interest can coincide with the social interest. But the converse is not true. The private pursuit of profit on the market ignores social goals. Many of these social goals can hardly be expressed in a market-based way.
great read, I’ll be sharing the information
We have had a mixed state/market economy for 100 years. The state invtreenes to prevent child labour, insist on safe working conditions (more or less successfully), encourage investments in favoured activities by tax credits and accelerated depreciation allowances (hello big oil and many mines), building roads and bridges and other physical infrastructure (history of 19th C Canada and US: railroads political decision which cities got rail service and which now long gone or at least much diminished did not); education programs (apprenticeships for what trades? etc) etc etc. The question is the mix, and to a question of degree not kind the direction.Every time we have a few years of prosperity, people (business people, some politicians, many follow-the-herd journalists) say that we’ have now figured out the right balance of political direction and market energy, so we won’t have any more recessions/failures. Then the economy tanks, and it turns out the theories weren’t quite right, or the foolproof balance ran into more imaginative fools than had been anticipated. It is not clear from the passage that Eric gives us just what the learned professor would like to do to change the balance and he may be right, too. Clearly we haven’t arrived at perfection quite yet