Money is not wealth [View all]

[MichaelMcGuire]

By A Anderson

To understand our current economic problems we should start with Adam Simth. By his observations and enquiries, of the early development of capitalism, mainly in Glasgow, Smith used his knowledge and insight to probe into what we would now call economics and came out with some very interesting ideas. Perhaps the most significant of his ideas was about the role of the ‘market’ in a capitalist exchange system. He showed that the “market” although set up primarily by producers of goods and services for their own purposes, soon took on a life of its own, because it brought consumers together and gave them power, and this forced producers to meet its requirements which often conflicted with theirs. This view of the significance in economics of the ‘free market’ has been at the centre of economic theory ever since and remains so, and virtually all economic theory is related in some degree to this concept, Marxist theory not excluded.

Adam Smith ideas have since been stretched and distorted to the extent that he is cited as justifying greedy capitalism. In this way Adam Smith’s ‘free market’ theory which recognised the market’s power to influence even the people who had established it, was converted to the ‘magic power’ of the market and was developed and exaggerated until it would have been entirely unrecognisable to Smith himself. One hundred years after his book was published the ‘Classical Economists’, who were all Adam Smith enthusiasts, were teaching ‘laissez-faire’ economics which postulated that the ‘free market’ had powers of self regulation and would adjust itself back into ‘equilibrium’ if left to its own devices and ‘freed’ from human ‘interference’. What Smith had taken pain
s to show and prove scientifically, they had turned into an act of faith or religious believe which did not require scientific explanation.

Karl Marx did understand Smith and his materialist (scientific) approach. He also of course had the views of the ‘Classical Economists’ to look at as well. Marx accepted Smith’s views on this and the significance of the ‘free market’ but he rejected the ‘Classical Economists’ nonsense about a self-regulating market. He pointed out that far from being self-regulating the market was in fact unstable in two specific ways, and that left to its own devices the market would get out of control. It is the first of these that I will consider in this article.

To-day we can observe three distinct theories of economic development at work. What I will call; (1) The Chinese growth model, (2) The Keynesian model and (3) The Neo-Classical model, but since we are concerted with the Scottish economy I will leave the Chinese Growth model to one side. Marx’s first comments on the stability of the market related to the regular fluctuations in the market caused by the exaggerations in investment in ‘capital goods’ as the result of minor changes in market demand for ‘consumer goods’, and how this would lead to regular and increasing market fluctuation if not controlled. This aspect of the market’s inherent instability was picked up later by Keynes and is now widely understood.

"The important thing about any economic theory is that it should be subject to testing in the real world. Smith, Marx and Keynes ask you to use logic to judge their theories. Neo-classical economics requires blind faith."


Source: http://www.scottishleftreview.org/article/money-is-not-wealth/