“The Capital Order” misses the imperative that sets the schedule for Austerity -
i.e., Disruptive Technologies caused Loan Portfolio Devaluations & changes in payment schedules due to Overheated Economies
A Constructive Critique by Gus More, of “The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism” a History of Political Economy written by Assistant Professor Clara E. Matei, of The New School for Social Research, Economics Department.
Before my critique, let me say: “I won’t be surprised if ‘The Capital Order’ becomes part of the essential reading lists of ‘History of Political Economy’ classes at major and minor Universities around the world”. Assistant Professor Clara E. Matei has written an impressive scholarly work in both academic form and in its substance (with profound original paradigmatic insight). She has set the table for an analysis that will finally allow us to decipher whether Capitalism is not correctible or improvable with Keynesian Economics or some other fix.
However, in order to achieve that, she’ll need to include a crucial financial system recurring phenomenon - the important effect that ‘disruptive technologies’ have on deflating the value of outstanding loans on existing technologies and the means of production they support. It is these disruptive technological advances that set the timetable for when and to what extent austerity needs to be imposed if the Banks want to avoid taking huge losses, and to retain their place in ‘The Capital Order’.
During the time period she covers, the existential threat to the capital order may have in deed, primarily, been the realization by the working class that laissez-faire capitalism was not the only way to run an economy - given that governments had taken over running their economies during the war, thus creating a desire for that to continue after the war, including being supplemented by co-ops, industrial counsels, and other democratic means, until Government Economy could be replaced by workers’ ownership of the means of production. However, when it comes to the time period of her next book in which she is going to emphasize analyzing Keynesian Economics applications, Clara is going to have to definitely include the effects of ‘disruptive technologies’ on the deflation of value of outstanding loans as the imminent threat to the technologies and methods of production they support, that bankers and economists anticipate will then soon encounter intense competition from the new technologies, that will drastically slow down sales from the technologies that are being replaced in the markets, by both Producers and Consumers.
In addition, an ‘Overheated Economy’ - is a term relative to the changed expectations of existing loan interest revenue, due to either a change in ‘life expectancy of produced means of production’ i.e. machinery, and increased labor costs, from ‘overtime pay’ premiums to workers; or due to the quicker production and sales of produced goods. Thus, Bankers’ need to “take away the punchbowl just as the party gets started”.
‘Disruptive new technologies’ are therefore not the only imminent existential threats - during so-called Business Cycles, so too are - an increase in labor costs (e.g. time-and-a-half pay for overtime beyond 8 hours), a change in the depreciation amortization of production equipment, and also acceleration of expected sales relative to those timetables assumed in the affected loan agreements due to those borrowers' ability to pay off loans quicker than expected, thus changing the ‘Expected Interest Returns on Loan Investments’.
Rather than the all-encompassing ‘existential threat’ of the post WWI period, that Clara covers in her book ‘The Capital Order’ having to do with working-class opinions regarding laissez-faire capitalism, it is the ‘imminent threat’ of Bank loans deflation caused by disruptive technologies, changes in equipment depreciation, increased labor costs due to overtime pay, and faster sales volumes than expected, that need the primary attention in her next book on the so-called ‘Golden Age of Capitalism’, because without that paradigm the refusal of Politicians and the Federal Reserve to implement Keynesian Economics or to do so in what appears to be a haphazard way - sometimes self-defeating or working at ‘cross-purposes’ - will be confusing and most probably be reduced to accusing them of being a cacophony of greedy self-interested ideologues. However, ideologies - like economic classes and hierarchical nomenclature - are not enough to mandate financial payment schedules and interest rates - the only thing that can do that, are existing loan agreements and contracts; and the only aggregators of enough loans to coordinate Politicians and Central Banks are the Central Banks’ clients i.e. the Commercial Banks.
From the point of view of the Banks, the existential threat is that their business customers might change their payment schedules or default on their loans. When a business is having trouble paying its loans within the agreed upon schedules - it effectively is reducing the ‘real’ interest rate of its loans thus segueing the Banks into a defacto lowered interest rate; when new technology disrupts enough Bank loan customers (especially really big businesses or entire industry sectors) - that is when the existential threat is imminent, and that is when the Banks think it's time for austerity (mild austerity is slowing down the economy; strong austerity is so banks can make up for actual or imminent losses due to disruptive tech).
These are the missing dynamics that I think are essential to the analysis that Clara has been doing, especially as she ventures into her sequel book “The Golden Hour” with Keynesian Economics as its focus, in the so-called ‘Golden Age of Capitalism’.
Including these “loan deflation dynamic causes” in ‘The Capital Order’, would possibly have been premature - it might have muddled the narrative at the risk of sounding like Capitalist Apologetics. However, including it in her sequel will be an exciting reveal and will give Keynesian Economics (from 1945-1973) the other side of the coin that it both deserves and is intrinsic to the real-world dynamic.
After 1973, things got much more complicated. Nixon's visit to China in 1972 set the stage for the U.S. State Department to negotiate what in Military Terms is known as a “Conditional Surrender”; then in 1979 it was officially announced to the World by establishing full Diplomatic Relations with China and granting them “Most Favored Nation” trading status with the U.S. That was done because the U.S. population had become the largest, richest, most educated middle class in the History of the World and could no longer be drafted into the army, so the U.S. Government decided to implement Woodrow Wilson’s “Invest in other countries in order to prevent war” policy, and ‘the capital order’ started implementing a new austerity by sending production and jobs to China, thus slowly taking away the ability of the U.S. Middle Class to make a substantial economic living. Add to that the offensives against Labor Unions, the Deregulation of Banks (taking us back towards the Roaring 20’s), Business Consolidations and Antitrust Violations, all while increasing our access to credit - home equity first, then unsecured credit cards - to pacify us for as long as possible; and further developing the derivatives markets to have a place to keep and grow their historic profit levels instead of investing them in things that would benefit the Middle Class, up until the Dotcom Boom Market Collapse in 2000 and before 9/11/2001 when yet again things got more complicated (declaring war on Iraq - some say probably to stop it from selling petroleum in Euros; the collapse of the Mortgage Backed Securities Derivatives markets; and the Pandemic).
So 1945-1973 is a good time frame for The Golden Hour; 1972-2000 might be the best time frame for the next book after that; then 2001 - Present day for the last in the series.
In gratitude for her studies and writings, and in hopes of being helpful to Clara Matei (such a great academic scholar), I’ve written this suggestive critique. I hope she, her advisers, editor, and publisher find it useful.
Sincerely,
Gus More
Comments
Post a Comment