A far more fundamental revolution in economic thought is needed than the new theory of capitalism that Paul Mason calls for (To move beyond boom and bust, we need a new theory of capitalism, G2, 23 March). Ever since Adam Smith, economics has been pursued as a science, as a discipline that seeks to improve knowledge about economic phenomena. But at the heart of the enterprise there is a problem of living, having to do with the creation and distribution of wealth – or, better, the sustainable creation and just distribution of wealth. Granted that the task of economics is to improve our attempts at solving this basic, real-life problem, economics needs to give intellectual priority not to theory or the pursuit of knowledge but to (a) getting clearer what our economic problems are, and (b) proposing and critically assessing policies designed to help solve them. Economics ought not to be thought of as a science at all. Rather, its proper, fundamental task is to invent and critically assess policies from the standpoint of their capacity, if implemented, to help solve our real-life economic problems.
Nicholas Maxwell
Emeritus reader, University College London
• Paul Mason is right to want a fundamental reform of economics, and not just to incorporate behavioural economics “so that bankers can construct trading models to iron out problems created by the way our brains work”. He favours the Minsky theory that financially complex capitalism is inherently unstable because debt tends to rise exponentially until the next crash. But capitalism has had a good run for at least a century, while the Minsky view has only begun to look plausible since 1970s deregulation. This might suggest that a bit more regulation would put things back on track.
To “model capitalism’s current crisis within an understanding of its destiny”, Paul Mason’s objective, we need to return to an older discipline of “political economy”, with its understanding that people are not simply self-seeking individuals (rational or otherwise) but also have a collective social role. The rule of law, collectively imposed, has always been essential to healthy capitalism. The problem with “financially complex capitalism” is that the power structure has changed so that rewards have been allowed to flow increasingly to global corporations and rich individuals, who look for financial assets and short-term returns rather than recycling their wealth into consumption or productive investment (or tax); hence “weak global demand” (Andy Haldane’s phrase) and top-down, debt-fuelled stimulus. So the problem rests with democratic politics, to roll back inequality without financial collapse or political revolution.
Alan Bailey
London
• I was sadddened to read Paul Mason’s article. I think he could not be more wrong. Thanks to the work of earlier economists – Keynes and Schumpeter in particular – we already have all the theory we need. Add to this body of theory a good dose of economic history – in particular, the history of past booms and slumps – and some acquaintance with the boardroom processes by which investment decisions are arrived at, and the strategies needed to avoid damaging extremes of boom and slump become blindingly obvious.
Implementing such strategies, and installing the necessary institutional framework, are different problems altogether. But they are problems of politics, not economics; and they are problems that no theory – grand or otherwise – concerning capitalism’s “destiny” can help with.
Cries for a new “theory of capitalism” are a symptom of physics envy – the ailment that has been afflcting economics for at least the past 50 years. It really is time we got over it.
Cyril Aydon
Adderbury, Oxfordshire
• The answer to Paul Mason’s “right question” about capitalism (“Where are we in the long arc of capitalist development?”) is surely “at the end”. The third phase of capitalism described by Ernest Mandel and others is fully entrenched: multinational corporations, globalised markets and labour, mass consumption and highly liquid multinational flows of capital. It is not a sturdy beast. Austerity is specifically designed to prevent the collapse of global capitalism, which is severely weakened by the dominance of finance and fictitious capital. A new theory of capitalism may well be helpful, but we also urgently need practical solutions to the current crises. Capturing a large chunk of available capital to allocate to trade and enterprise, and addressing climate change and peak oil, are clear priorities. Without the latter, capitalism is doomed anyway – and so are we.
Mary Braithwaite
Wye, Kent
• I’d recommend Paul Mason to read page 81 of The World Economy Since the Wars, 1994, by JK Galbraith, distinguished economist. He noted that Say’s law did not ensure that increased productivity automatically lifted all incomes. He wrote of the 1930s that “banks were afraid to lend, pressed by bad loans, lacking suitable solvent borrowers. With slack demand, workers were laid off, the depression deepened.” Further, “when income is unequally distributed, large blocks of purchasing power accrue to fortunate individuals under no pressure to spend, and the situation worsens”.
That’s where Britain is today. But Germany isn’t. They are compelled to have worker reps elected to the board by unions. They help get a fair share of the loot for their members, who are much more dependent on their company than top management or shareholders.
Bill Hyde
Offham, Kent
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