A few years ago I was giving a presentation on faulty economic thinking to a conference of historians at the University of London. It is interesting, also, because Jeremy Bentham, the founder of economic utilitarianism, is entombed there…sort of.
Upon his death two centuries ago, he amply endowed the University, but with a curious stipulation. Bentham had to be present at all annual meetings, his will required. Consequently, his embalmed body is kept in a cabinet, which is opened, and minutes of each annual meeting show Bentham to be present…but not voting, of course.
Now…that strikes me as eccentric.
My U of London talk went well. Later, however, a resident historian shared observations about each presentation. When he got to mine, sadly, he commented that I had done little more than to describe reality.
Hmmm. No high-wire analysis; no grand theories? Just reality!
I fumed as I stumbled into the British Museum next door. Unlike their field, why can’t historians sense the challenge in economics of getting beyond embedded eccentricities? Why can’t they appreciate piles of arcane theory, including those left behind by the dead guy in the cabinet, downstairs?
Later, it occurred—perhaps the historian had provided something I hadn’t noticed, and needed badly. In his matter-of-fact assessment, I realized, he offered a refocusing on what I was attempting to do. It is, indeed, the task of describing economic reality—crisply—amid piles of embedded eccentricities.
So, in a nutshell, this is how macroeconomic reality looks to me.
The world changes and evolves, but particularly for fundamentalists, the way in which they think the world should work, does not remain apace. Consequently, out-of-focus economic thinking must be recalibrated, particularly, economic thinking related to two doctrinal glitches.
One is Say’s Law. It caused the first train wreck—the Great Depression—and it can be fixed, merely by qualifying the role of orderliness in economic doctrine. With it, also, must be qualified, themes of Spartan individualism, self-liquidating tax cuts and the gutting of essential government services.
The other—the second doctrinal glitch—caused the second train wreck, the Great Recession. Cambridge professor Joan Robinson called it the profit lacuna, meaning a void where a theory of profit is not, but ought to be.
Because conventional capitalist doctrine contains no specific reward to the capitalist, beyond compensation to the rentier, neither does it contain a specific theory of profit. Therefore, any profit theory must be an add-on to standard doctrine. Surely, without clear doctrinal guidance on what the rate of capitalist profit should be, then in the real world, built in-incentives only encourage formerly legitimate capitalists to segue, instead, into pseudo-capitalist rentiers.
The profound challenge of our time, then, is to isolate fraud associated with the doctrinal profit lacuna, rather than to look the other way and declare self-interested pursuits by pseudo-capitalists to be compatible—pretty much always—with the common good.
Well, more on the second doctrinal glitch to come. For now, check out Capitalism in Crisis on the World Wide Web.
From Boulder, Colorado, this is Jim Sawyer for Capitalism in Crisis.