Keynes and Veblen

Most of these writers base their analysis on the work of John Maynard Keynes, who famously called for “the euthanasia of the rentier.” Nesvetailova and Palan, on the other hand, draw upon the work of one of Keynes’s predecessors, Thorstein Veblen, a nineteenth-century political economist most famous for his theory of conspicuous consumption, laid out in a book called The Theory of the Leisure Class.

In some ways, Veblen’s analysis is more radical than that of Keynes. The latter’s theory of the business cycle suggested that the finance sector would exacerbate the propensity of capitalism toward boom-and-bust cycles by lending too much in the good times, and not lending enough in the bad.

The pro-cyclical tendencies of finance were, for Keynes, an inherent feature of any modern capitalist economy. Individual financiers could not be blamed for providing high-interest loans to businesses or consumers that were clearly unable to repay them: they were simply responding to the incentives that exist in a free market regulated by the state.

Veblen did not consider capitalist rentiers to be quite so blameless, as should be clear from his use of the term “sabotage.” He argued that financiers actively sought to control and dominate markets in order to maximize their profits — even if that meant adopting anti-competitive, immoral, and occasionally illegal business practices. Like Karl Marx, he insisted that capitalism had an inherent tendency toward market concentration, which would give rise to extreme inequalities of wealth and power.

Controlling the Market

As Nesvetailova and Palan put it, financiers “never believed in markets in the first place. They believed, instead, in controlling the market. By whatever means possible.” Today’s financiers have become expert monopolists; a few huge, international institutions — with close links to regulators — dominate financial market, and use their quasi-monopolistic power to extract “super-normal profits” from ordinary investors.

This tendency has become acutely clear during the coronavirus pandemic: in the United States, the chief secretary to the Treasury is reported to have solicited senior advisers from Goldman Sachs to oversee the now-defeated bailout package put forward by the Republicans in Congress.

How do these saboteurs achieve their monopolistic ends? They innovate. Financial innovations like the development of the mortgage-backed security (MBS), the collateralized debt obligation (CDO), and the credit default swap (CDS) all dramatically increased the profitability of big international banks in the 1990s and early 2000s. They also helped cause the financial crisis of 2008. Nesvetailova and Palan argue that these and other financial “innovations” represent nothing more than regulatory arbitrage: “technique[s] for sabotaging the public welfare and government.”

The solution to the problem of sabotage is fairly simple, for disciples of Veblen and post-Keynesians alike. The state — the only set of institutions with the necessary power, legitimacy, and resources — needs to take back control of financial markets and impose regulatory control over the saboteurs.

The authors call for a return to the “pro-market, anti-business” approach to regulation pursued in the wake of the Wall Street Crash, which guards against the monopolistic instincts of businesses and protects the functioning of free markets. Such an approach would, they claim, allow regulators to find a third way between statists and free marketeers, and “[protect] the consumers of finance from sabotage.”

Technocratic Illusions

Most economists, it appears, are terrified that they might be accused of allowing ideology to influence their arguments. To guard against that, they frenetically seek out seemingly neutral, objective, technocratic “solutions” to modern policy problems, from inequality to climate change.

By furnishing policymakers with an objective understanding of an issue and providing them with a set of neutral tools to solve it, economists claim to facilitate an evidence-based approach to regulation, free from any ideological baggage. Such is the approach of Nesvetailova and Palan, who plead with policymakers to “move beyond the binary dichotomy of ‘market vs regulation.’”

The trouble is, there’s no such thing as an apolitical policy intervention — and there’s certainly no such thing as a non-ideological approach to the economy. The authors may draw on the work of Veblen, but the ideological approach that really underpins Sabotage is the liberal Keynesianism described by Geoff Mann in his book In the Long Run We Are All Dead.

Like Keynes, the authors believe that free-market capitalism is a sound economic system that occasionally malfunctions, whether due to uncertainty, liquidity preference, or — in this case — sabotage. And, like Keynes, they believe that it’s the responsibility of the state to step in and prevent such malfunctions from happening, or at least to clean up when they do occur.

Nesvetailova and Palan assume that the problems generated by capitalism are a bug in the system, rather than an inherent feature of it. In part, this is due to the classic liberal assumption of a separation between the political and the economic. Sabotage is a political — or even moral — issue that compromises the normal functioning of the economy. In order to make the economy work again, the state — conceived as a neutral enforcer of the common good — simply needs to step in to regulate the system and punish the saboteurs.

Their State and Ours

But the state is not a neutral economic actor. Diverse sets of competing interests influence the decisions made by policymakers, including those of the finance sector itself. The links between business, finance, and the state do not represent a perversion of liberal democracy, but they are an unavoidable feature of capitalist political economy.

Wealth translates to political power, and power back to wealth, so that a small number of people in modern capitalist economies control our largest political and economic institutions. These are the very people benefiting from the kind of sabotage Nesvetailova and Palan so eloquently describe in their book. What possible incentive could they have to change the system?

There are no non-political solutions to economic problems: every economic question is a question of power. Competing interest groups — Marxists call them classes — must organize in order to articulate their demands and transform our institutions. In a capitalist economy, the ruling classes will always have the upper hand. Challenging their dominance — and the crisis tendencies it generates — requires more than just clever economic analysis. It requires building a movement to demand a different future.

Nowhere has this been clearer than in the response of capitalist states to the coronavirus crisis. Many on the Left have welcomed the rise in state spending that we’ve seen of late, claiming that it vindicates the fiscal policies articulated by politicians like Jeremy Corbyn and Bernie Sanders.

In fact, governments have used these stimulus measures to support the interests of the coalition that underpins neoliberalism — homeowners and capitalists — rather than to help working people. Mortgage holders, but not private renters, are being offered repayment holidays; businesses are being given tax cuts; and there’s widespread talk of bailouts for huge multinational corporations.

We are now entering an age of state-monopoly capitalism, where the interests of leading politicians, financiers, and corporate executives are fused to such an extent that they come to resemble the “general cartel” posited by Rudolf Hilferding back in 1917. In that context, the capitalist state is no friend of socialists, however large it becomes.

Fighting back against the oligarchy that will use this crisis to strengthen their grip on political power is the central task for socialists today. We can only begin to move beyond capitalism once we democratize the state.