Thursday, December 23, 2010

Julian Assange Interview With Cenk Uygur.

From all the recent Assange interviews I’ve seen, I would recommend this one with Cenk Uygur- essential viewing.

Here is the transcript of the interview.

Portion of Transcript:

"CENK: Well Julian I want to get to as much as possible here so I want to give you a chance to respond one by one to your critics, first to Mitch McConnell who is of course the leader of the Republicans in the Senate and to Joe Biden who both said that called you a high tech terrorist how do you respond to Joe Biden the Vice President of the United States saying that to you?

JULIAN: Well let's look at the definition of terrorism, the definition of terrorism is a group that uses violence or the threat of violence for political ends now no one in our four year publishing covering over 120 countries has ever been physically harmed as a result of what we've done. Now that's not just us saying that, that's the Pentagon saying that, that's NATO and Kabal saying that. No one, not a shred of evidence. Now believe me if they could find or even easily manufacture a shred of evidence they would be doing that immediately so it's clear that whoever the terrorists are here it's not us. But we see constant threats from people, Republicans in the Senate trying to make a name for themselves, to people like Sarah Palin to Shock Jocks on Fox and unfortunately some members also of the Democratic party calling for my assassination calling for the illegal kidnapping of my staff and just a few days ago on Fox that was the phrase that was used "illegal, he should be illegally murdered if necessary, assassinated by the law if possible if not illegally" what start of message does that send about the rule of law in the United States? That is conducting violence in order to achieve a political end the elimination of this organization or the threat of violence to achieve a political end the elimination of a publisher and that is the definition of terrorism.

CENK: Now I want to give you a chance to respond personally though because here Mike Huckabee is making it very personal you saw that quote we had up, he says "I think anything less than execution is too kind a penalty for you" Sarah Palin saying that you are like Al-Qaeda and the Taliban and that you should be pursued with the same urgency so how would you respond to Mike Huckabee who is a top Republican leader, likely to run for President again. How would you respond to Sarah Palin, top Republican leader who might run for President again?

JULIAN: Oh it's just another idiot trying to make a name for himself, but it's a serious business I mean if we are to have a civil society we cannot have senior people making calls on national TV to go around the Judiciary and illegally murder people that is incitement to commit murder that is an offense you cannot have senior people on national TV asking people to commit an offense. That is not a country that obeys the rule of law. Does the United States obey the rule of law, because Europeans are starting to wonder whether it is still obeying the rule of law and it needs to be very careful is it going to descend into an anarchy where we don't have due process where those great Bill of Rights traditions about due processes thrown to the wind whenever some shock jock politician just thinks that they can use it to make a name for themselves? Or do we take things according to laws expressly made by the people and their representatives that is the way things should be done and when people call for illegal deliberate assassination and kidnapping of others they should be held to account they should be charged for incitement to commit murder."

Sunday, December 19, 2010

Speeches in Support of Wikileaks.

Here is a series of speeches in support of Wikileaks, from rallies held at Sydney Town Hall on the 10th and 14th of December, 2010.

Greens Senator-elect Lee Rhiannon, Sydney on Friday 10 December.

This speech is by Keith Dodd, an American IT worker. Again, 10th of December.

Green Left Weekly's Simon Butler, 10th of December.

Professor Stuart Rees, Director of the Sydney Peace Foundation, addresses a crowd in Sydney for the second rally in support of Wikileaks and Julian Assange held on Tuesday 14th of December.

I Found this speech particuarly interesting. Director of the Australian Centre for Independent Journalism Professor Wendy Bacon addresses a crowd in Sydney for the second rally in support of Wikileaks and Julian Assange held on Tuesday 14th of December.


More can be found here. And here.


Next Rally for Wikileaks in Sydney, 15th of January, 1pm at Town Hall

Wednesday, December 15, 2010

Michael Moore on Wikileaks.

Wikileaks Rally, Sydney.

This clip is of a protest in support of Wikileaks in the Australian city of Sydney, on the 14th of December 2010. I was present at the march. You can see quite clearly that the police started to attack the protestors after blocking their path off the road. There is another protest in support of Wikileaks planned for Sydney on the 15th of January, at Town Hall at 1p.m. This is an extremely important issue. Whatever reservations one might have over specific wikileaks releases, this case will be a defining moment for freedom of information and freedom of press in the information age. Wikileaks did not steal or solicit classified documentation; it merely published the material in collaboration with mainstream media outlets. It is a media organization and should be protected from persecution.


Sign this online petition against any extra-judicial campaign against Wikileaks and to support due process and the rule of law.

The Australian group 'Get Up!' has organized a campaign to buy advertisement in the New York Times in support of Wikileaks and condemnation of those who have called for violence against, Australian citizen and Wikileaks founder, Julian Assange. You can sign a petition in support and donate: here.

Thursday, September 30, 2010

Carbon, Tradable permits and Pigouvian Taxes.

The Stern Review of the Economics of Climate change has identified greenhouse gas emissions as the greatest market failure in history. Carbon dioxide (CO2) emissions are a leading cause of climate change and have been targeted by government and non-governmental organizations as an area of grave policy concern. Policy proposals to ameliorate CO2 emissions have centred around two broadly based methods: “ economic instruments” and “command and control regulations”. The adoption of economic instruments to regulate the problem of CO2 emissions can entail either the introduction of market mechanisms to price emissions and allocate the right to emit limited quantities of CO2, or price-based instruments such as tax regimes and subsidies. Command and control regulations are policies that involve direct government interventions into the forms of practices surrounding CO2 Emissions, from technological standards to performance targets. The mainstream economics literature on policy instruments has largely been couched in terms of economic efficiency according to marginalist principles. Ecological economics developed in opposition to the neoclassical approach and prioritizing the needs of the ecological system above short-run economic efficiencies. The environmental economics case for an emission trading system and carbon permits face two broad stumbling blocks. Firstly, from within neoclassical economics there is the case for command and control regulation or a hybrid policy that combines such regulation with economic instruments and secondly, theories developed outside of the neoclassical paradigm question its validity with regards to ecological sustainability.

In environmental economics, the problem of externalities and the issue of carbon emissions are often approached from two divergent perspectives influenced respectively by the work of Arthur Pigou and Roland Coase. Both advocated the use of economic instruments to reconcile social and private goods and overcome market failure. However, the tradition stemming from the work of Pigou heavily favoured price-based instruments (i.e. taxes) and the tradition that derives from the work of Coase favoured quantity-based instruments (i.e. tradeable permits). The relative merits of price and quantity based instruments have been a central nexus of environmental policy debates within neoclassical informed discourse. Prior to the work of Coase, Pigou’s position taken in The Economics of Welfare generally informed the discussion of environmental externalities.

Pigou’s approach to internalizing environmental externalities was by the imposition of a tax equal to the marginal social cost of the externality. The standard example of this, according to Coase, was of a factory emitting smoke that affected nearby residences. From the principle of polluter pay, central to Pigouvian taxes, the solution is to make the factory liable for the damages. However, from the perspective employed by Coase, this is not necessarily the most economically efficient solution to the problem of environmental externalities. The clear delineation between offender and victim that is exemplified in the polluter pay principle is therefore not unproblematic in Coase’s treatment of externalities. He argued that the problem was essentially reciprocal in nature. From Coase’s viewpoint, the above factory example is not merely a matter of the factories effect on the residences, but also the effect of the residences on the factory. Economic activity is often associated with positive and negative externalities; pollution from the Coasean perspective implies both utility and disutility. Therefore, with regards to externalities, the economic problem as conceived by neoclassical economics still applies: “how to maximise the value of production?” Coase’s proposed solution to the problem of externalities and imbalances between marginal costs and marginal benefits caused by such market failures is to introduce tradeable property rights to price and allocate resources efficiently. Emissions trading schemes are informed by the logic of Coase’s argument for tradable property rights and an economically efficient method to internalize environmental externalities.

The selection between quantity based and price based instruments to deal with environmental externalities is often defined by the nature of the externality. The cost associated with abetment and the social costs associated with the continued market failure at different levels of production have to be taken into account. Moreover, uncertainties with regards to the underlying scope of the externalities and information asymmetries within the market place and governmental bodies influence the policy instruments selected. Martin Weitzman’s work on the relative merit of price and quantity based instrument influenced the Stern Review on merit of adopting quantity based instrument such as emissions trading scheme to abate global climate change. Weitzman had concluded that price based instruments are beneficial when the price of mitigation is more pertinent than quantity of pollution. Conversely, when the cost of increased pollution levels outweigh the relative cost of abetment quantity based-instruments are preferable. The prospect of global climate change caused by the proliferation of greenhouse gasses and the resultant greenhouse effect renders the level of emissions crucial. Increased levels of CO2 emissions could lead to tipping points and feedback loops that could drastically increase global temperatures that would adversely impact numerous ecosystems. Consequently, given the cost of increasing emissions, quantity based instruments have been recommended to mitigate the market failure of CO2 emissions and other greenhouse gasses.

The economic arguments rendered by Coase and Weitzman in favour of quantity based instruments to that of Pigouian taxes are augmented by a theory of government failure. F.A. Hayek argued for the superiority of the market in conditions of imperfect information. When conditions of imperfect completion prevail, the determination of economic organization rests upon the ability to efficiently utilize information. From Hayek’s perspective, the implementation of Pigouvian taxes would require that governments have information of the individual production functions of firms. Whereas, by employing quantity based instruments, governments can set the level of desired outputs and allow the firms to find the most cost-efficient method of production. The economic rationale for the adoption of quantity based instrument, such as the tradable carbon emissions permit, is that they theoretically provide the most cost effective and least uncertain method of internalizing environmental externalities.

Tradable permit schemes have been successfully adopted to deal with negative environmental externalities in the past. In 1990, the United States’ legislature passed amendments to the clean air bill which established an emissions trading scheme for the emission of sulphur that had lead to widespread acid rain in the 1980s. The stated goal of the scheme was to reduce sulphur emission by 10 million tons annually through the gradual reduction of permit allowances. Before the introduction of the program, prices per allowance were predicted at $300 per permit, the actual average cost early in the program was $100 per allowance. This is evidence that the cost of emissions reduction was miscalculated by planner and that individual firms found a more cost efficient method to reduce emissions given the prospect of having to purchase permits. However, the problem of sulphur emissions and the issue of global climate change differ considerably in scope.

In mainstream environmental economics, the argument advanced either for quantity and price based instruments is crouched in the logic of the marginal principle and partial-equilibrium analysis. This is both a policy benefit and pitfall. Unlike local externalities, such as the smoke from a factory irritating local residences, carbon emissions and the prospect of global climate change affect the entire economy and ecological systems. Both Coase and Pigou’s analysis of the problem of social and private goods are subject to this weakness of scope. However, carbon permits could provide the intermediate means to signal the need to transform the economy to a low-carbon state. The economic case for carbon emission provides a rationale that preferences economic efficiency above that of ecological sustainability. Intuitively, there should be no divergence between these two goals, however, the problem of uncertainty remain whatever policy measures are adopted to address the issue of climate change and carbon emissions.

Written by Mathew Toll.


Coase, R.H. (1960), “The Problem of Social Cost”, The Journal of Law and Economics, Vol. 3, pp. 1-44.

Harris, Jonathan M. (2006), Environmental and Natural Resource Economics: A Contemporary Approach, Boston; Houghtoni Mifflin Co.

Helm, Dieter. (2005), “Economic Instruments and Environmental Policy”, The Economic and Social Review, Vol. 36, No. 3, pp. 205-228

Hepburn , Cameron. (2006), “Regulation by Prices, Quantities, or Both: A Review of Instrument Choice”, Oxford Review of Economics Policy, Vol 22, No. 2, p. 226-247.

Koldstad, Charles D. (1999), Environmental Economics, New York; Oxford University press.

Mckibbin, Warwick J. and Wilcoxen, Peter J., “The Role of Economics in Climate change Policy”, The Journal of Economic Perspectives, Vol. 16, No. 2, pp. 107-129.

Stern, Nicholas. (2006), Stern Review of the Economics of Climate change, Cambridge; Cambridge University press.

Monday, August 2, 2010

Marx and Keynes: The Problems of Unemployment and Crisis.

Marx's analysis of capital was an attempt to uncover the fundamental laws of motion that govern the capitalist mode of production. Marx differed from many of his contemporaries in that he conceived of capitalism as necessarily dynamic and incapable of homeostasis . This resulted from a complex array of factors, the ultimate source of which is the need to produce surplus-value. Marx claimed this amounted to the “absolute law’ of capitalist production. However, the expansionary impetus of capital is not a smooth linear process of growth and the accumulation of capital is subject to recurrent interruptions and crises. Marx argued that this tendency toward crisis arises from the competition between capitalists and the success of prior accumulation. In apparent contradiction to Marx, Keynes formulated a theory of effective demand that explained economic fluctuations and downturns in terms of insufficient aggregate demand. For Keynes, the causal factor that leads to below capacity economic activity and involuntary unemployment are low entrepreneurial expectations and inducement to invest that result in ineffective demand. Thus, while capitalism has no innate tendency toward an equilibrium of full employment it is not incompatible with the system either. In contrast, Marx held that capitalism required unemployment and underemployment to moderate the demands of labour upon capital. Marx and Keynes, despite some substantive difference of opinion, are not polar opposites in their respective conceptions of capitalism. Differences in political philosophy and technical vocabulary belie many common elements of economic analysis.

In many respects, Marx’s theory of growth was a re-working of earlier models developed by François Quesnay, Adam Smith and David Ricardo. As stated above, the concept of surplus-value is of central importance to Marx’s theory of capital accumulation. The centrality of this notion has given rise to much controversy. However, Paolo Sylos Labini has argued that much of this criticism is confused and can be dispensed with, if it is remembered that the concept of surplus-value largely coincides with the concept of net income developed in the works of Quesnay, Smith and Ricardo and its explanatory power does not require acceptance of the labour theory of value . Labini did note differences; for Quesnay net income consisted of ground rents, whilst for Marx, Smith and Ricardo net income (or surplus-value) is constituted in rent, profit and interest . Marx differed from Smith and Ricardo in that he placed considerable importance upon the expansion of “constant capital” (machines and raw materials that comprise the means of production) and not just “variable capital” (the wage-fund that sustains labour-power) and rent. Marx employed two schemes of reproduction to illustrate the dynamics of economic activity and the nature of surplus-value, constant and veritable capital.

The first of Marx’s schemes of reproduction, simple reproduction, is largely a heuristic tool that models a stationary capitalist economy in which there is no growth. Simple reproduction, heavily influenced by Quesnay’s economic table, helps to define the necessary conditions of economic reproduction. Simple reproduction demonstrates two straightforward ideas: 1) the process of production must also be one of reproduction, and 2) this circular process reproduces the relations of production. The direct implication of simple reproduction is that to maintain economic viability the constituent elements that comprise the process of production must be recreated anew in each cycle of production. Thus, both the constant capital and variable capital required for the next cycle of production must be produced in the last. Marx’s scheme of simple reproduction is often illustrated by sector models. Luigi Pasinetti provides a three-sector model of Marx’s scheme of simple reproduction that contains; 1) a capital goods sector, 2) a wage goods sector and 3) a luxury goods sector. The capital goods sector produces constant capital (C), the wage good sector produces variable capital (V) and the luxury goods sector provides an outlet for surplus-value (S). It follows that in order for simple reproduction to occur, the value of C produced in the first sector must equal the constant capital requirements of all sectors. Similarly, the value of V produced in the wage goods sector must equal the variable capital needs of all sectors. And finally, the value of S extracted from all sectors must be consumed within the luxury goods industry. The assumption that all surplus-value appropriated by the owners of the means of production is consumed in the form of luxury goods is the crucial distinction between simple and expanded reproduction. From the perspective of Marx, his scheme of simple reproduction is an abstraction and leaves aside the issue of accumulation of capital . However, this model demonstrates the circular nature of production that is itself reproduction of its constituent elements. Moreover, the scheme highlights the interrelated nature of production and consumption.

Importantly, simple reproduction can only be maintained when the values that comprise production (C, V and S) are recreated in proportionate quantities. If say, the quantity of C produced in the first sector vastly exceeds the needs of all sectors then the price of C will not reflect the value imbued in the commodities of the sector. Disproportionality between sectors of the economy can result in a form of “realization crisis” if the imbalance is significant enough and within a crucial sector of the economy. Realization crises are defined by the quantitative gap between consumption and production that end in the inability to sell commodities at their value within the market. Crises that stem from a disproportionality between the sectors are only one form of realization crisis. Paul M. Sweezy argued persuasively that disproportionality crises are of secondary importance when compared with realization crises that result from the “underconsumption of the masses”. Marx’s called this lacuna between the consumptive and productive powers of the capitalist mode of production its “fundamental contradiction”. Moreover, Marx argued that: “the conditions of direct exploitation and those of the realization of surplus value are not identical” . In Marxian terms, the rate of surplus-value is determined by the ratio of value embodied in commodities and the replacement costs of production . From this it follows that, the aggregate wages of workers is exceeded by the aggregate cost of commodities. This results in a precarious situation in which the drive for increased surplus-value on behalf of capital can undermine its ability to realize this surplus value in the market.

Similarly, Keynes, in his outline of the theory of effective demand, argued that increased wealth can also increase the gap between the possible production of a society and its actual production. Deficient aggregate demand and the resultant involuntary unemployment form the core of what Keynes called the “paradox of poverty in the mist of plenty”. Like Marx, Keynes had theorized that entrepreneurs (that is, capitalists) are motivated by the desire for profits. Employment of workers is only rational from this premise if the benefits derived from employment exceed the costs of said employment. Expectations of profits are therefore the key determinate in what Keynes called the “inducement to invest”. If aggregate demand, determined in any given society by their propensity to consume and the rate of new investment, is insufficient to achieve effective demand then unemployment and sub-optimal levels of economic activity will ensue. The problem arose, Keynes felt, that the wealthier a given community becomes the harder it is to sustain adequate levels of aggregate demand. This resulted from the inability to of the community to absorb commodities beyond their propensity to consume, that Keynes claimed increased with income, but not by the same proportion. Therefore, new investment has to fill the gap between the community’s propensity to consume and effective demand. However, there is no inherent law that inducement to invest increase in proportion to the existing level of wealth in a society. Marx differed from Keynes, in that; the ability of the community divided between classes to absorb surplus-production was not limited a given propensity to consume, but was derived from its inability to acquire commodities given the narrow basis of their consumptive power relative to productive power.

The contradiction between the consumptive power and productive power of the capitalist mode of production is the result of the drive for surplus-value and capital accumulation. Importantly, the process of capital accumulation does not necessarily reproduce each variable of production in exact proportions. The accumulation of capital, at fist expands quantitatively without qualitative change. This affects the demand for labour-power and therefore increases the bargaining power of workers. Given that profit is defined by an inverse relation to the wage rate, when the latter reaches a point where it threatens the rate of accumulation capitalist introduce technical innovation that displaces labour and relives downward pressure upon profits . Marx’s noted the effect of war demands and legal reductions of the absolute rate of surplus value on the agricultural industries between 1849 1859. At first, it seemed that the agricultural workers had made considerable gains given the shifted nature of supply and demand. However, this quickly gave agricultural capitalist the incentive to revolutionize the means of production. Unemployment, in the form of a reserve labour of army, is a necessary mechanism for the accumulation of capital. However, this moderation of the wage rate functions both ways. Michel Kalecki argued a decline in real wages and therefore consumption can undermine wage-good industries and therefore cause decreased output it not counteracted with increased capitalist consumption or investment for which he saw no necessary reason to assume.

Marx’s conception of capitalism was developed in dialogue with classical political economy that he simultaneously attempted to overcome and absorb. His focus, like much of political economy, was on the phenomenon of economic development and capital accumulation. The circulation of capital and the resultant accumulation of capital is a dynamic process that requires the production of surplus-value above that required to sustain the economic process of production and reproduction. However, this dynamism is subject to contradictions between the productive capacity of capital and the consumptive capacity of labour. As Keynes noted, the gap between the community’s propensity to consume and production becomes increasingly problematic as economic development continues. This derives more so from the inability to the proletariat to consume the products of capitalist production given the extraction of surplus value. In the process of accumulation of capital, whenever demand for labour outstrips that of supply, the wages of labour will increase and can affect the rate of profit. Incentive to introduce labour-displacing technologies then increase and the reserve labour of army is reestablished to adequate levels. As Kalecki noted, decreases in the real wage can also affect the ability of capital to realize their profit and undercut the process of capital accumulation. That is to say, from the perspective of capital, optimal wages are consistent with Aristotle’s ethical aphorism: a mean between two extremes.

Written by Mathew Toll.


Kalecki, Michal. (1966), Studies in The Theory of Business Cycles, London; Basil Blackwell.

Keynes, John Maynard. (1937), “The General Theory of Employment”, The Quarterly Journal of Economics, Vol 51, No. 2, pp 209-223.

Keynes, John Maynard. (1951), The General Theory of Employment Interest and Money, New York; Harcourt, Brace and world.

Labini, Paolo Sylos. (1984), The Forces of Economic Growth and Decline, Cambridge; MIT Press.

Marx, Karl. (1986), Capital: A Critique of Political Economy, Vol 1, Trans Samuel Moore and Edward Aveling, Edited Frederick Engels, Moscow; Progress Publishers.

Pasinetti, Luigui. (1977), Lectures on the Theory of Production, New York; Columbia University Press.

Schumpeter, Joseph A., (1950), Capitalism, Socialism, and Democracy, New York; Harper & Brothers Publishers.

Sweezy, Paul, (1970), The Theory of Capitalist Development: Principles of Marxian Political Economy, New York; Modern Reader Paperbacks.

Friday, May 21, 2010

Marx on Religion.

" The foundation of irreligious criticism is: Man makes religion, religion does not make man. Religion is, indeed, the self-consciousness and self-esteem of man who has either not yet won through to himself, or has already lost himself again. But man is no abstract being squatting outside the world. Man is the world of man – state, society. This state and this society produce religion, which is an inverted consciousness of the world, because they are an inverted world. Religion is the general theory of this world, its encyclopaedic compendium, its logic in popular form, its spiritual point d’honneur, its enthusiasm, its moral sanction, its solemn complement, and its universal basis of consolation and justification. It is the fantastic realization of the human essence since the human essence has not acquired any true reality. The struggle against religion is, therefore, indirectly the struggle against that world whose spiritual aroma is religion.

Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.

The abolition of religion as the illusory happiness of the people is the demand for their real happiness. To call on them to give up their illusions about their condition is to call on them to give up a condition that requires illusions. The criticism of religion is, therefore, in embryo, the criticism of that vale of tears of which religion is the halo.

Criticism has plucked the imaginary flowers on the chain not in order that man shall continue to bear that chain without fantasy or consolation, but so that he shall throw off the chain and pluck the living flower. The criticism of religion disillusions man, so that he will think, act, and fashion his reality like a man who has discarded his illusions and regained his senses, so that he will move around himself as his own true Sun. Religion is only the illusory Sun which revolves around man as long as he does not revolve around himself.

It is, therefore, the task of history, once the other-world of truth has vanished, to establish the truth of this world. It is the immediate task of philosophy, which is in the service of history, to unmask self-estrangement in its unholy forms once the holy form of human self-estrangement has been unmasked. Thus, the criticism of Heaven turns into the criticism of Earth, the criticism of religion into the criticism of law, and the criticism of theology into the criticism of politics."

From "A Contribution to the Critique of Hegel’s Philosophy of Right" by Karl Marx.

Monday, May 17, 2010

Minsky and the Financial Crisis.

Hyman P. Minsky’s “Financial Instability Hypothesis” has received renewed interest in light of the current malaise. Minsky attempted to formulate an endogenous theory of financial instability and in this pursuit he focused primarily on income-debt relations and the negotiation between bankers and businessman. This hypothesis is predicated upon the existence of an intricate and highly evolved financial system operating within a capitalist economy. Based upon this assumption Minsky’s hypothesis is a partial explanation of the current crisis. The scope of analysis presented in the hypothesis does not venture to explain the interconnections between the financial sector and the real economy. The increased relative importance of finance and the process of financialization that underlay the current financial crisis are completely outside of the parameters of the financial instability hypothesis. From the perspective of policy formation, explanations of the crisis in terms of both its proximal and ultimate causes inform efforts for an adequate response. To follow this line of enquiry; Minsky’s financial instability hypothesis will be given fuller exposition with reference to different interpretations and extrapolations of his perspective, and moreover the hypothesis will be evaluated as an explanation of the current crisis. Finally, the policy implications of Minsky’s hypothesis will be analysed in light of its explanatory power and in relation to other explanations of the proximal and ultimate causes of the crisis.

Minsky stated that his financial instability hypothesis was developed in large part as an alternative interpretation of John Maynard Keynes’ “General Theory”. He borrowed from economic literature informed by the experience of the great depression and concerned with the nature of boom and bust cycles. Famously, Minsky asked the question: “can ‘it’ happen again?” He answered that ‘it’, another great depression, was unlikely to occur given the role of central banks in the monetary system. However, consistent with the influence of Keynes, Minsky remained concerned with role of expectations and uncertainty in the economy and the possibility of these variables contributing to instability. The insistence of instability stands in stark contrast to the vision of financial markets held by supporters of the “efficient market hypothesis” who conceive of rational actors pushing asset-prices toward their “fundamental value”. From within the Keynesian tradition, Minsky questioned the extent to which financial actors can be construed as rational actors and instead characterized actors as subject to certain attitudinal dispositions and mentalities that affect their decision making processes.

Similarly, Fisher Black, who co-derived the Black-Scholes formula to price financial derivatives, once made the point that: “expectations follow no rational rules”. Minsky’s hypothesis is therefore based upon a psychological understanding of individual actors and their collective dynamics. Alongside of the influence of Keynes, Minsky incorporated the work of Charles Kindleberger on the five stages of speculative bubbles into his financial instability hypothesis. Importantly, the hypothesis is not advanced on an appreciation of subjective elements alone and incorporates an interpretation of over-indebtedness developed by Irving Fisher and the credit view of money developed by Joseph A. Schumpeter. Thus, the central nexus of Minsky’s financial instability hypothesis is the relationship between income, credit, debt and the ability of cash flows to sustain the given level of liability. This relationship is, of course, dependent upon the expectations and impressions of bankers and businessman.

In expansionary economic conditions, where the inducement to invest is strong, businessman are willing to take on debt to finance their investments. Fisher argued that an appetite for debt-fueled investment in buoyant economic conditions leads to economic crisis. Technological progress and new inventions opened up investment opportunities that were expected to return rates of profit in excess of interest rates and the cost of money. Levels of debt increased dramatically; however, the accumulation of debt is not the single factor that results in over-indebtedness. In reference to the early 1970s, David Laibman noted that debt to equity ratios were marginally above 1929 levels and this was taken to be a sound basis to predict an imminent collapse of the financial system. Despite minor recessions and tremors, no major economic downturn occurred within the U.S economy until four decades later. Obviously, the sheer quantitative dimension of debt is not sufficient to explain cyclical downturns and economic crashes. Both Fisher and Minsky emphasized the crucial relationship between debt and income, Minsky took this a step further and developed a tripartite typology of debt-income structures for financial units.

The first debt-income structures for financial units, “hedge financing units”, are characterised by the ability of the unit to realise all of their payment obligations. Higher rates of equity to debt are indicative of hedge financing units. Secondly, “speculative” units are able to meet commitments on interest repayments, but are unable to pay down the principle of the debt from their incoming cash flows. Thirdly, ponzi units are unable to finance either interest repayments or repayments on the principle with exiting cash flows. Ponzi units can only be sustained from the liquidation of assets or the leveraging of more debt, both of which can only ever be stop gap measures. Financial systems that are dominated by hedge units are said by Minsky to be “equilibrium seeking”, while systems characterised by significant portions of ponzi units are said by Minsky to be “deviation amplifying”. Minsky argued that, when conditions of prosperity continue for an extended period of time, the financial system undergoes a qualitative transformation from hedge finance to unsustainable finance dominated by speculative and ponzi units. This transformation is affected largely by the prior success of finance and its effects on the expectations of financial actors.

As Fisher noted, the primary cause of over-indebtedness that underlay the great depression was the existence of good investment opportunities. The abundance of investment opportunities in the 1920s led to financial euphoria and over-confidence, this in turn led to over-indebtedness on behalf of entrepreneurs seeking profitable investment. In Minsky’s terms, hedge finance geared toward the advancement of capital to business operations became increasingly speculative and unsustainable Ponzi finance. Once financial actors realised that the system had become unable to validate current debt levels there was a fall in confidence and the process of debt-deflation and economic contraction set in. The process by which hedge finance is transformed into Ponzi finance via the evolution of expectations has been labeled the “basic Minsky cycle” by Thomas Palley. More controversially, Palley discussed the nature of a “super Minsky cycle” that links optimism within the financial market itself to increased optimism within regulatory institutions. Both cycles help explain the financial dynamics that led to the collapse of the sub-prime mortgage market in early 2007. Whilst the first cycle has gained wide acceptance, the latter cycle is controversial because its relation to Minsky’s hypothesis has been questioned . Despite this, the super cycle thesis advanced by Palley is clearly inspired by Minsky’s financial instability hypothesis and helps to broaden it perspective with regards to financial regulation.

John Bellamy Foster and Robert W. McChesney have argued that by introducing the notion of a “super cycle”, Palley has converted Minsky into “a theorist of a financial long wave”. They contend however, that it is precisely in terms of long-run trends that Minsky’s hypothesis has least explanatory power. To leave aside Foster and McChesny’s criticisms of Minsky’s short-run perspective for now, the extent to which Minsky’s hypothesis adequately explains the proximal causes of the crisis has been questioned. Jan Kregel has highlighted two important short falls of Minsky’s hypothesis when applied to the recent crisis. Firstly, the primacy of entrepreneur-banker negotiations has shifted since the 1980s with increased importance of proprietary trading, and secondly given this, the mechanism by which the financial system degenerated into Ponzi finance was not declining margins of error between liabilities and cash flows as classically outlined by Minsky, but new models of banking operations that were inherently risk-riddled. Kregel placed central importance on the “originate and distribute” methods that bank employed leading up to the crisis . To accrue quick profits by fees and commissions, banks would form new securitised assets and sell them on. The ‘originate and distribute’ model involved a complex set of institutional relationships that Peter Gowan labeled the “new wall street system” that facilitated excessive levels of leveraging via a series of adjunct financial institutions that have been characterised as a “shadow banking system”.

The shadow banking system linked traditional commercial and investment banks to hedge funds and private equity funds. These along with other structured investment vehicle (SIV) provided the context for new financial instruments that hid liabilities and risk allowing for increased leveraging and regulatory escape. Not surprisingly, Minsky had noted the possibility that creative accounting can mask the transition from hedge to ponzi finance. New forms of financial instrument that developed alongside the shadow banking system help facilitate such creative accounting. Credit derivatives, in the form of Collateralized Debt Obligations (CDOs) and Credit Default Swaps (CDSs), were two such financial instruments that caused much of the damage to the financial system. Between 2001 and 2006 the total nominal value of sub-prime mortgages increased from $160 billion to $ 600 billion . Banks packaged these loans into CDOs and sold them over the counter (OTC) without a market mechanism to determine the CDOs ‘fundamental value’. Rating agencies, who underwrite CDOs for a fee, would for an additional fee rate these credit derivatives as “AAA”. The complexity of CDOs and the OTC nature of the transitions meant that the financial instruments are extremely difficult to price effectively. This is compounded by the fact that unlike traditional commodity based derivatives the notional value of mortgage tranches was not determinable as the components of any given CDO were not know. It is clear that the over-investment and over-indebtedness that preceded the great depression is qualitatively different than that which precipitated the latest financial crisis. Minsky’s insistence on the primacy of banker-businessman negotiations and the steady decline of margins of error in the transition from hedge to ponzi finance are brought into contestation when applied to the financial crisis of the late 2000s. However, Minsky’s general theorem that extended periods of prosperity bred optimism that lead to over-indebtedness and speculative manias remains valid. Allen Greenspan’s reference to “irrational exuberance” in 1996 underscores this point. The stock market bubble to which Greenspan referred to was overcome by the bubble within real-estate and the financial system layered one problem upon another. While Minsky’s hypothesis remains somewhat helpful for an explanation of the proximal causes of the crisis, he remains silent on long-term trends and the nature of financialization that underlay the financial crisis.

The quantitative dimension of the crisis and its consequences can only be understood with relation to the financialization trend in the U.S economy from the 1970s and with increasing velocity through the 1990s. By the 1990s, financial profits were far in advance of non-financial profits. Keynes’ concern that: “speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirl-pool of speculation” is brought into play when the financial sector grows out of proportion with the real economy. Two general theses have emerged to explain the growth of finance and its correlation with stagnation in the real economy. The issue is that of precedence, either financialization causes stagnation in the real economy by luring capital away from productive enterprise, or a lack of real economy investment opportunities leads to the development of finance to employ surplus capital and generate profits. If the latter, the stagnation thesis, is accepted over the financialization thesis the prognosis is dire. Capital accumulation has reached a point of saturation and the possibilities of productive real economy investments have become scarce. Recurrent financial crises will emerge from the attempt of capital to overcome this underlying over-accumulation. At best, reform can lead only to momentary relief. However, if the financialization thesis is adopted, re-regulation of the financial system is possible and can limit its demonstrated proclivity to instability. The financial instrument that hid liabilities and allowed for the half-conscious slip into ponzi finance could be addressed, along with the regulation of bank and non-bank financial institutions. However, Palley’s extension of Minsky’s financial instability thesis demonstrated that optimism within the financial market can lead to unfounded optimism within the regulatory institutions and therefore the long-term ability to overcome financial instability is brought into question.

Minsky formulated a theory of endogenous financial instability. To construct his hypothesis he drew on the Keynesian tradition, the theories of bubbles developed by Charles Kindleberger, Schumpeter’s credit theory of money and Irving Fisher’s debt-deflation theory of the great depression. He was concerned with issue of the possibility of future great depressions. Minsky’s policy recommendations fit within this tradition and focus on the central bank as lender of last resort and the importance of reflation to fight debt-deflation processes that can lead to sharp contractions in economic activity. Like Fisher, Minsky sought to analyse the financial system in terms of income-debt relations and developed his typology of financial units. He argued that on the basis of prior successes and the extrapolation of these trends, sound financial systems based predominantly around hedge finance can be transformed into speculative and ponzi finance. In regards to the latest financial crisis, the precise mechanisms outlined by Minsky have less applicability than to prior crises. This is linked with institutional changes that occurred in the banking system during the 1980s and the increased importance of proprietary trading and the interconnected web of institutions that formed the shadow banking system that obscured the health of the financial system. On the proximal causes of the financial crisis, Minsky’s hypothesis is moderately useful. Given its endogenous character, the deeper causes of the financial crisis and the process of financialization are wholly unexplained. The nature of such trends and their importance for policy formation are not appreciated by Minsky. Minsky’s hypothesis is partially vindicated by the financial crisis and stands to caution financial operatives and regulators of the continued relevance of uncertainty and expectations in financial markets. 

Written by Mathew Toll.


Barberis, Nicholas and Thaler, Richard, (2002), “A Survey of Behavioral Finance”, Working Paper, No. 9222, National Bureau of Economic Research, Cambridge, Massachusetts, pp. 1-8

Black, Fisher, (1986), “Noise”, The Journal of Finance, Vol. 41, No. 3., pp. 529-543.

Blackburn, Robin. (2008), “The Subprime Crisis”, New Left Review, 50, pp. 63-106.

Fisher, Irving. (1933), “The Debt-Deflation Theory of Great Depressions”, Econometrica, Vol. 1, No. 4. pp. 337-357.

Foster, John Bellamy, (2008), “The Financialization of Capital and the Crisis”, Monthly Review, Vol 59, No. 11, pp. 1-19.

Foster, John Bellamy and Magdoff, Fred. (2008), “Financial Implosion and Stagnation: Back to the Real Economy”, Monthly Review, Vol 60, No. 7, pp. 1-29.

Foster, John Bellamy and McChesney, Robert W., (2010), “Listen Keynesians, It’s the System”, Monthly Review, Vol 61, No. 11, pp. 44-56.

Gowan, Peter. (2009), “Crisis in the Heartland: Consequences of the New Wall Street System”, New Left Review, 55, pp. 5-29.

Keynes, John Maynard, (1936), The General Theory of Employment Interest and Money, New York; Harcourt, Brace & World.

Kregel, Jan, (2008), “Minsky’s Cushions of Safety: Systemic Risk and the Crisis in the U.S. Subprime Mortgage Market”, Public Policy Brief, Highlights, no. 93A, Leavy Economics Institute of Bard Collage, New York.

Laibman, David, (2009), “The Onset of Great Depressions II: Conceptualizing the Crisis”, Science & Society, Vol 73, No. 3, pp 299-308.

Minsky, Hyman P. (1992), “The Financial Instability Hypothesis”, Working Paper, No. 74, The Jerome Levy Institute of Bard College, New York.

Palley, Thomas I. Palley., (2010), “The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis”, Monthly Review, Vol 61, No 11, pp. 28-42.

Wednesday, April 28, 2010


"When Chiang Kai-shek started his offensive against us in 1946, many of our comrades and the people of the country were much concerned about whether we could win the war. I myself was concerned. But we were confident of one thing. At that time an American correspondent, Anna Louise Strong, came to Yenan. In an interview, I discussed many questions with her, including Chiang Kai-shek, Hitler, Japan, the United States and the atom bomb. I said all allegedly powerful reactionaries are merely paper tigers. The reason is that they are divorced from the people. Look! Wasn't Hitler a paper tiger? Wasn't he overthrown? I also said that the tsar of Russia was a paper tiger, as were the emperor of China and Japanese imperialism, and see, they were all overthrown. U.S. imperialism has not yet been overthrown and it has the atom bomb, but I believe it too is a paper tiger and will be overthrown. Chiang Kai-shek was very powerful, for he had a regular army of more than four million. We were then in Yenan. What was the population of Yenan? Seven thousand. How many troops did we have? We had 900,000 guerrillas, all isolated by Chiang Kai-shek in scores of base areas. But we said that Chiang Kai-shek was only a paper tiger and that we could certainly defeat him. We have developed a concept over a long period for the struggle against the enemy, namely, strategically we should despise all our enemies, but tactically we should take them all seriously. In other words, with regard to the whole we must despise the enemy, but with regard to each specific problem we must take him seriously. If we do not despise him with regard to the whole, we shall commit opportunist errors. Marx and Engels were but two individuals, and yet in those early days they already declared that capitalism would be overthrown throughout the world. But with regard to specific problems and specific enemies, if we do not take them seriously, we shall commit adventurist errors. In war, battles can only be fought one by one and the enemy forces can only be destroyed one part at a time. Factories can only be built one by one. Peasants can only plough the land plot by plot. The same is even true of eating a meal. Strategically, we take the eating of a meal lightly, we are sure we can manage it. But when it comes to the actual eating, it must be done mouthful by mouthful, you cannot swallow an entire banquet at one gulp. This is called the piecemeal solution and is known in military writings as destroying the enemy forces one by one."

- Mao. November 18, 1957.

Monday, April 26, 2010

Notes on the 'Volker Rule' and the Financial Crisis of 2008.

The ‘Volker Rule’, proposed by the Obama administration early in 2010, has generated considerable controversy. The two main features of the ‘Volker Rule’ is: 1) a ban on proprietary trading and bank involvement in hedge funds and private equity funds for their own profit independent of their customers, and 2) the introduction of measures to bar the further consolidation of the financial system. Much depends upon the exact wording of the planed legalization, but the ultimate aim is to rectify issues of moral hazard and to mitigate the systemic treat to the financial system posed by reckless financial operations. In terms of moral hazard, the proposed reforms will attempt to demarcate between speculative financial operations and commercial banking operations which are insured by the public. Therefore, according to the Administration’s position, undue risk will not be insured by the public and the costs of which will remain with those who have generated it, thereby reducing moral hazard. Concurrently, financial stability will be further served by the reduction of moral hazard and the interdiction placed upon increased consolidation of the financial system. In an effort to evaluate the proposed ‘Volker Rule’, an analysis of the financial crisis will be rendered, therefore allowing the White House’s position to be compared with prior experience of financial instability and the problem of moral hazard.

The proximal cause of the financial crisis was the increased rate of defaults among holders of sub-prime mortgages toward the end of 2006 and the beginning of 2007 (Blackburn, 2008, p. 64). The burst of the housing bubble and the free fall of mortgage-backed securities led to a classic liquidity trap. Bank increased their propensity to horde and ipso facto the credit market contracted. The underlying cause of the sub-prime market collapse, which precipitated the wider financial crisis, had deep roots within the evolution of the American financial system and the conditions of the consumption-led and debt-fed growth of the 2001-2006 period (Blackburn, 2008, p. 71; Gowan, 2009, pp. 7-9).

The growth exhibited in the 2001-2006 period was not predicated upon increased levels of productivity, evidenced by the enlarged levels of both corporate and private debt. Between 1997 and 2007 total debt in the U.S. economy grew by almost 100% of gross domestic product (GDP), from 255.3% in 1997 to 352.6% in 2007 (Blackburn, p. 66). Of this, debt in financial institutions grew the fastest with 63.8% of GDP in 1997 to 113.8 % of GDP in 2007, compared with an increase from 66.1% to 99.9% of GDP held by households in the same period (Blackburn, p. 66). This coalescence of debt within the American economy was itself a product of numerous factors, not least of which was the development of pension funds (injection of cheap credit) and the formation of what Peter Gowan (2009, pp. 6-8) has called the “New Wall Street System” that involved excessive levels of leveraging and a series of adjunct financial institutions that have been characterized as a “shadow banking system”.

The first plank of the Volker Rule, the proposed ban on proprietary trading in commercial banks and their involvement in hedge and private equity funds, is aimed at the shadow banking system. However, Paul Volker’s emphasis on commercial banking misses most of this system which is primarily based around investment banks. Senator Mike Johanns responded to Volker’s skewed focus upon commercial bank, he said: “I don’t think the Volcker rule would have stopped the behaviour of A.I.G.” (Chan, 2010). Volker dogged this counterfactual point by stating he wished to foresee future treats to the system and reaffirmed his commitment to end “taxpayer support for speculative activity” (Chan, 2010). The point still remains, however, that the financial crisis emanated from the highly leveraged position of investment banks and the shadowy system of associated financial institutions that facilitated balance-sheet expansion and ultimately debt saturation.

Of central importance to this picture, the shadow banking system was not only founded upon a new institutional framework (often referred to as the ‘lender-trader model’ and ‘prime brokerage model’) that linked traditional banks to hedge funds and private equity funds, but also the proliferation new financial product that dressed liabilities as assets (Gowan, 2009, p. 14). Credit derivatives, in the form of Collateralised Debt Obligations (CDOs) and Credit Default Swaps (CDSs), were two key financial products that caused much of the damage in the financial crisis (Blackburn, 2008, p. 75). Between 2001 and 2006, the total nominal value of sub-prime mortgages increased from $160 billion to $600 billion (Blackburn, 2008, p.72). Bank then bundled these loans into CDOs and sold them over the counter (OTC) to their clients without a market mechanism to determine the CDOs fundamental value. Rating agencies, who often underwrite CDOs for a free, would for a second fee rate these credit derivatives as ‘Triple A’, in terms of credit worthiness (Gowan, 2009, p. 14). The complexity of CDOs and the OTC nature of the transaction meant that they are extremely difficult to price effectively. This is because, unlike traditional commodity based derivatives, the notional value of mortgage tranches was not determinable as the components of any given CDOs were not known (Gowan, 2009, p. 15).

The proposed reforms entailed in the Volker Rule do not address the issue of credit derivatives and the effective pricing mechanism for such financial instruments, a process that fouled up the financial system with toxic assets. Nor does the Volker rule address the issue of leveraging within banking institutions. In fact, in 2004 the Securities and Exchange Commission agreed to effectively render “net capital rule” redundant, therefore allowing investment banks to determine their own debt/equity ratios (Gowan, 2009, p. 15). The thin capitalization that this allowed and the development of high-risk and complex financial instruments combined to cause extreme uncertainty within the financial system and therefore extreme instability. None of the Volker Rule recommendations rectify these underlying issues of financial instability. The attempt to demarcate between proprietary trading and commercial banking activities may decrease issues of moral hazard, depending upon the exact wording of the proposed legalization which remains unknown. The second stipulation of the Volker Rule, the ban on future consolidation of the banking system through a deposit cap, does nothing to address the already highly consolidated nature of the financial system and the spectre of ‘too big to fail’. In many respects, the Volker Rule is well intentioned but wholly inadequate in dealing with either the issue of moral hazard and financial instability.


Blackburn, R. (2008), “The Subprime Crisis”, New Left Review, 50, pp. 63-106.

Chan, Sewell. (2010), “Dodd Calls Obama Plan Too Grand”, New York Times, [], retrieved: 28th of March 2010.

Gowan, P. (2009), “Crisis In The Heartland: Consequences of the New Wall Street System”, New Left Review, 55, pp. 5-29.

Thursday, April 15, 2010

Sketches of Historical Capitalism: From The Protestant Ethic to The Capital-Labour Relation.

Maurice Dobb’s commenced his “Studies in the Development of Capitalism” with the question of definition. He argued that quite apart from pedantry, questions of definition and definitional stances “ipso facto” implied the implementation of a “principle of classification” and therefore shape the scope of analysis(1).In reference to capitalism, he identified three major perspectives that applied counterpoised principles of classification and causal explanations of historical capitalism. The first popular approach outlined by Dobb, was that of Werner Sombart who attempted to ascertain the essence of capitalism through an appreciation of the “bourgeois spirit”(2). Max Weber followed a similar approach to the problem of capitalism with the proposed connection between Protestantism and the spirit of capitalism(3). The second position, linked capitalism to the separation of production and retail sale with the introduction of intermediaries. The third conception, and the position taken by Dobb, is derived from the works of Karl Marx who defined capitalism as a “mode of production”, that entailed a unique set of social relations of production(4). The adoption of any of these three classifications has the obvious effect of informing historical analysis and the question of capitalist development. Immanuel Wallenstein once argued that, if the accumulation of previously objectified labour-power was the only criterion of capitalism than all historical economic systems could be characterized as capitalist(5). Such a definition would of course, be of little use to explaining the unique social transformations experienced in Western Europe from the fiftieth century onwards.

The development and characteristics of Western European capitalism (and that of the North-American colonies) was a consistent feature of Max Weber’s scholarly output, much of which had been an attempt to challenge and modify the Marxian standpoint(6). Weber identified modern capitalism with; “the rational utilization of capital in permanent enterprise and the rational capitalistic organization labour”(7). He argued that the source of this rationalization was not liberal enlightenment, but the practical rationalism of the Protestant ethic (8). In evidence of his claims, Weber highlighted the social stratification between Protestants and Catholics in many localities of Europe which showed a consistent trend towards Protestant’s attaining higher socio-economic standing (9). However, the correlation between Protestantism and the development of capitalism as posited by Weber is deeply spurious given the historical fact that capitalistic enterprise was first developed in Catholic Italy and later Catholic Belgium before Protestant England(10).

In many respect, the history of Italy between the 12th century and the 16th century is analogous to later developments in Western Europe, though, of course, it diverges in important aspects. During this period, many Italian city-states developed and centralized political and economic power within urban centers, and moreover attained considerable wealth by means of commerce(11). Thus, Adam Smith noted, their wealth was largely predicated upon shipping and the transference of commodities produced elsewhere to foreign markets(12). In this sense, the wealth of these city-states was accumulated upon the logic of merchant capital. That is, money (m) is used to acquire commodities (c) and then sold on at a higher price (m’)(13). Marx expressed the logic of Merchant capital as m-c-m’. Profit is derived by exploiting differences in prices of production between varied “spheres of production”(14). Merchant capital, thus defined, is not directly related to the process of production. However, it had an important role in the transition from feudalism to capitalism, both as a “dissolvent” of feudalism (subject to its “internal structure”) and a fetter upon true capitalist production and social transformation (15).

Increased circulation of merchant capital had two major affects on the dissolution of feudal relation: firstly, the quantitative expansion of monetary circulation allowed for the concentration of monetary wealth, and secondly, the expansion of this circulation affected spheres of production geared towards the creation of use-value and encouraged production for exchange(16).The concentration of merchant capital and the expansion of trade within Western Europe were greatly advanced by the discovery of the Americas and the new path forged to India in the late 15th century(17).However, the expansion of merchant capital was a historically precursor to the capitalist mode of production and not the thing itself. The view that capitalism constitutes merely a commercial system or that intermediates between production and retail sale is the central criteria offer to wide a definition which can be applied from contemporary history back into classically antiquity. Merchant capital functioned to undermine the feudal system, but this was predicated upon the internal weakness of the mode of production as it existed in 15th century Europe.

By the late 14th century, serfdom had largely disappeared in England and the majority of the population comprised of free peasants(18).The historical process that resulted in the transformation of feudal relation of obligation into monetary relation is tided up with the development of towns and the manufacturing of luxuries that allowed the aristocracy to consume surpluses on their own household(19).Aristocratic consumption helped the development of artisan trades and the development of manufacturing curial to the growth of towns and the development of capitalism. Moreover, this increased conspicuous consumption had two other important effects; firstly, the great lord could no long afford to maintain unnecessary retainers and the increased demand for surplus led to the transformation of tenet relations and the improved cultivation of lands(20).The inability of the feudal lords to support the excess population of retainers and tenets led to the formation new class of proletariat unattached to the land(21). This emergence of a new class represented a watershed moment in the development of modern capitalism. Parallel to Marx’s position, Weber had noted that modern capitalism was defined by the organization of labour and the development of permanent enterprise(22).

The socio-economic transformations that led to the development of a new class of ‘free’ laborers within 14th century England is but one element in the development of capitalism. Take alone, this development does not equate to capitalism, in ancient Rome under the republican system there developed an extensive underclass of free labours(23). Needless to say, Rome’s economy was dominated by agriculture interests and the military apparatus that both equated to the prevalence of the slave-system – not capitalism. Historical capitalism is characterized by the relationship between capital and labour. Explanation of this development cannot be rendered in terms of mono-casual theories. The advent of Protestantism cannot explain the complex series of events that fostered the development of industry and capital accumulation. Nor can the exponential increase in merchant capital after the discovery of the new world, taken alone, explain the sudden transformation of Western Europe’s mode of production. Feudalism had already been weaken by internal contradictions that allowed for the development of towns and the emergence of new class of bourgeoisie who’s interests lay in the accumulation of capital along side the proletariat who had nothing to sell but their labour .
Written by Mathew Toll.

1)Maurice Dobb, (1951), Studies In The Development of Capitalism, London; Rutledge & Kegan Paul, p, 35.

2)Ibid, p. 332.

3)Max Weber, (1976), The Protestant Ethic and the spirit of Capitalism, trans Talcott Parsons, London; George Allen & Unwin, p. 35.

4)Maurice Dobb, (1951), Studies In The Development of Capitalism, p. 7.

5)Immanuel Wallenstein, (1983), Historical Capitalism, London ;Verso, p. 13.

6)Andre Gunter Frank, (1975), “Development and Underdevelopment in the New World: Smith and Marx vs. the Weberians”, Theory and Society, pp. 431-466, p. 431.

7)Max Weber, (1976), The Protestant Ethic and the spirit of Capitalism, p. 56.

8)Ibid, pp. 76-77.

9)Ibid, p. 35.

10)Andre Gunter Frank, (1975), “Development and Underdevelopment in the New World: Smith and Marx vs. the Weberians”, p. 434; Eric J. Hobsbawm, (1969), Industry and Empire, Harmondsworth; Penguin, p. 37.

11)Adam Smith, (1999), The Wealth of Nations: Book I-III, London; Penguin Group, p. 503

12)Ibid, p. 503.

13)Karl Marx, (1971), Capital: A Critique of Political Economy, Vol 3, Edited F. Engels, Moscow; Progress Publishers, p. 326.

14)Ibid, p. 330.

15)Ibid, pp. 331-332.

16)Ibid, p. 327.

17)Ibid, p. 332.

18)Karl Marx, (1988), Capital: A Critique of Political Economy, Vol I, Trans Ben Fowkes, London; Penguin Books, p. 877.

19)Adam Smith, The Wealth of Nations: Book I-III, p. 512.

20)Ibid, pp. 13-14.

21)Karl Marx, (1988), Capital: A Critique of Political Economy, Vol I, pp. 877-878.

22)Max Weber, (1976), The Protestant Ethic and the spirit of Capitalism, p. 56.

23)Karl Marx, (1953), “Marx to Otechestvenniye Zapiski, November 1877”, Selected Correspondence, Moscow: Foreign Languages Publishing House, pp.376-379, p 379.

Monday, March 15, 2010

Piero Sraffa’s Gesticulation.

The following quote relays an anecdote with regards to Piero Sraffa and his influence upon Ludwig Wittgenstein. I’ve hear of a similar story in which Wittgenstein was supposedly sent into a tailspin over a cyclist’s contemptuous gesture that he felt belied his work in the “Tractatus Logico Philosophicus”. Anyways, here it is:

“Wittgenstein was insisting that a proposition and that which it describes must have the same 'logical form', the same 'logical multiplicity', Sraffa made a gesture, familiar to Neapolitans as meaning something like disgust or contempt, of brushing the underneath of his chin with an outward sweep of the finger-tips of one hand. And he asked: 'What is the logical form of that?'”
-Norman Malcolm. Ludwig Wittgenstein: A Memoir. pp. 58–59.

Perhaps I’m mistaken, but Sraffa’s gesture to Wittgenstein is not a proposition. By definition, a proposition is a statement that functions as a truth-claim. Sraffa’s gesture is more akin to a negation and therefore a classic Wittgensteinian logical constant. No?

Saturday, March 13, 2010

Nostalgia for Bush.

In the New York Times, Stanley Fish has published a piece entailed: “Do You Miss Him Yet?”. The central claim of which is that George W. Bush’s reputation is undergoing a slight rehabilitation. The leading edge of a trend that will see him placed somewhere in between the worst and best presidents in history. This, Fish argues, is the result both of the stabilization of Iraq and the faltering nature of Obama’s administration. In my mind, the only rationale for this ostensive recovery (supposed and not demonstrated) is the same impulse that lead the persona of Milan Kundera’s novel “The Unbearable Lightness of Being” to declare: “[i]n the sunset of dissolution, everything is illuminated by the aura of nostalgia”.

Wednesday, February 3, 2010

Nietzschean Affirmations

"If we affirm one moment, we thus affirm not only ourselves but all existence. For nothing is self-sufficient, neither in us ourselves nor in things; and if our soul has trembled with happiness and sounded like a harp string just once, all eternity was needed to produce this one event - and in this single moment of affirmation all eternity was called good, redeemed, justified, and affirmed."
—Nietzsche, Friedrich, The Will to Power.

Sunday, January 24, 2010

"Albert Camus et le Nihilisme"

I don’t speak French; I have no idea what he is saying. Presumably something to do with nihilism and absurdity, but I find it interesting to see Camus’s mannerisms and hear his voice. It’s odd, having seen photos of him and imagined from that (and his work) what kind of man he was, to see him move.

Monday, January 18, 2010

Seduction and Panopticism

Michel Foucault (2002, p. 343) once wrote: “a society without power relations can only be an abstraction”. In contemporary sociology, the ubiquity of power is beyond contestation and forms a fundamental axiom of the field. Beyond this however, the exact nature and dimension of power dynamics are subject to varied interpretations and formulations. Foucault’s discussion of power, disciplinary society, panopticism, and related concepts offer substantive contributions to further studies of relations and economies of power within advanced capitalist societies. The notion of panopticism has enjoyed particular resonance, and contributed to the development of surveillance studies (Simon, 2005, p. 2). Moreover, Foucault’s metaphoric use of Jeremy Bentham’s panopticon is a standard reference for theorists who advance the “surveillance society” thesis; such theorists contend that the primary mechanism of social control in modern society is surveillance and the internalization of surveillance by the population which in turn molds individuals into self-surveilling subjects (Boyne, 2000, p. 293; Yar, 2003, pp. 255-256). Criticisms of this thesis have stressed the importance of “mechanisms of seduction”, that within contemporary society control is largely maintained by “enjoyment imperatives” and not through surveillance (Boyne, 2000, pp. 285-286). Discussion of the so-called surveillance society and mechanisms of seduction draw into question the continued relevance of Foucault’s notion of panopticism.

Through a discussion of these issues, the conclusion to be reached in this essay will reaffirm the importance of Foucault’s panopticism, concurrent with mechanisms of seduction that engender social conformity. Hence, the thesis that modern society constitutes a surveillance society will be rejected on the basis that it over-emphasizes one mechanism of power and social control. Firstly however, to establish a firm basis for this analysis, Foucault’s theory of the formation of disciplinary society and the nature of panopticism have to be given fuller explanation. The backdrop of Foucault’s analysis is the transition away from what Gilles Deleuze’s (1992, p. 3) labeled “societies of sovereignty” that characterized Europe before the end of the 18th century. The model of sovereignty that underpinned monarchal and absolutist regimes were based upon the premise of deduction, the power of the sovereign was asserted through subtractive mechanisms (Foucault, 1998, pp. 135-136).

In the first section of Discipline and Punish, Foucault (1991, pp. 3-6) quilted together a series of eye-witness accounts to the public execution of Damiens in 1757 for the crime of attempted regicide. The punishment was carried out according to a strict symbolism that mirrored the crime; this jurisprudence, Vico had noted, formed “an entire poetics” (Foucault, 1991, p. 45). Through this method of punishment, the sovereign had confronted the criminal on the level of the body, in a purely negative form with an excess of force that demonstrated the supremacy of sovereign power in a retributive ritual. For the moralist and reformer of the 18th century, this surplus-violence betrayed a tyrannical excess and inefficiency in its economy of power (Foucault, 1991, p.73). From the 17th to 19th centuries, there was a series of subtle transformation that modified the state and disciplinary mechanisms. Toward the end of that period, social order was no longer primarily maintained through the spectacle of punishment, but increasingly through surveillance and the internalization of disciplines (Foucault, 1991, pp. 216-217).

The proliferation of disciplinary techniques and the intensification of social surveillance saw the formation of a new economy of power that reduced the costs, economic and political, related to mechanisms of control, whilst maximizing the returns of docile bodies geared toward increased utility and efficiency (Foucault, 1991, p. 218-219). This general confluence of social observation and disciplinary tactics united in what Foucault (1991, p 9) term a general “disciplinary society”. Of paramount importance for the functionality of this disciplinary society was the deployment of panoptical apparatus that served to observe individuals and their interactions. Foucault’s (1991, p.205) notion of varied panoptical apparatuses or a general social “panopticism” were derived from Jeremy Bentham’s Panopticon, which represented for Foucault “the diagram of a mechanism of power reduced to its ideal form”.

Bentham’s panopticon was an unrealized architectural design. Bentham (1995, p. 31) described his plan as an “inspection house” the multifaceted applications of which could lead to: “morals reformed – health preserved – industry invigorated – instruction diffused”. The two mechanism it utilized to attain these effects was individuation and constant visibility (Foucault, 1991, p. 201). The circular design of the panopticon, with the individual cells arranged on the outer edge of the building allowed for a central vantage point, from which it is possible to observe all occupants and impossible for the occupants to see the observer. Each individual occupant immediately individuated and identifiable, conscious of their constant condition of being under surveillance internalizes their surveillance and begins to regulate their own behavior. Foucault (1991, p. 201) identified this as the efficiency of panopticism it: “assures the automatic functioning of power”.

Panopticism contrary to the Sovereign power, is de-individualized -“a faceless gaze that transformed the whole social body into a field of perception” – it is also “de-institutionalized” and it not centered in the state: church groups, charities, schools and private individuals can all serve as points of social surveillance (Foucault, 1991, pp. 211-214). More contemporary discussions of panopticism and the power of surveillance focus upon the dissemination of technological advancements that function like Foucault’s (1991, 211) “faceless gaze” such as closed circuit televisions or CCTVs (Simon, 2005, p. 6). It is estimated that there are approximately 21,000 surveillance cameras in the United Kingdom alone, it some locals these CCTV systems are linked up with face-recognition program which allow for the individuation of surveillance despite the open dynamics of the space (Boyne, 2000, p. 298). The importance of these new surveillance technologies is undeniable, and their panoptical dimensions are irrefutable. However, this does not preclude the importance of seduction mechanisms in the maintenance of social order.

Herbert Marcuse (1972, p. 21) argued that consumption patterns serve a further ideological function in the maintenance of capitalism rather then merely in the economic sphere. Through the development of mass culture there is a levelling out of contrast, when individuals of hostile social groups attain satisfaction through the same cultural products. This superficial “equalization of class distinctions”, as expressed by Marcuse (1972, p. 21) unifies the population in a desire for ‘needs’, which support the continuance of the establishment. The predominance of consumption and sensation seeking, Zygmunt Bauman argued, is “a condition sine qua non of being amenable to seduction” (Boyne, 2000, p. 298). In Bauman’s view then, panopticism is an outmoded form of social control given the positive incentives and imperatives indicative of conformity to social norms (Boyne, 2000, p. 298). Bauman is right to highlight the importance of seduction, however, panoptical mechanisms are not rendered redundant. Surveillance of individuals is often used in the social manipulation of their desires, advertisers utilize “cookies” to monitor individual internet usage and therefore tailor their advertisements to the observed individual (Boyne, 2000, p. 297). Mechanisms of seduction, therefore, coexist with panoptical apparatus.

Surveillance is a significant feature of modern society, technological advancement have changed the nature of panopticism as exhibited in the late19th and early 20th century. However, given the importance of seduction mechanisms and other modes of control it seems inappropriate and overzealous to describe social order predominantly in terms of surveillance. Marcuse’s analysis of varied consumption pattern’s and there ultimate conservative function underscores the point. Despite this, Foucault’s description of panopticism remains an important contribution to understanding contemporary power relations. In particular, the partial de-individualization of power-relations and the active involvement of the entire social body in exercising the ability to enable or disable modes of behavior – subject itself to the cynical manipulation of privileged discourse and institutions: at which point, seduction mechanisms and panopticism meet.

Written by Mathew Toll.

Boyne, Roy, (2000), “Post-Panopticism”, Economy and Society, Vol 29, No 2, pp 285-307.

Deleuze, Gilles, (1992), “Postscript on the Societies of Control”, October, Vol 59, pp 3-7.

Foucault, Michel, (1991), Discipline and Punish: The Birth of the Prison, Trans Alan Sheridan, London: Penguin Books.

Foucault, Michel, (1998), The Will To Knowledge: The History of Sexuality, Vol one, Trans Robert Hurley, London: Penguin Books.

Foucault, Michel, (2002), “The Subject and Power”, Power: Essential Works of Foucault: 1954-1984, Vol three, Edited James D. Faubion, Trans Robert Hurley and others, London: Penguin books, pp. 326-348.

Marcuse, Herbert. (1972), One Dimensional Man: Studies in the Ideology of Advanced Industrial Society, London: Abacus.

Simon, B, (2005), “The Return of Panopticsm: Supervision, Subjection and the New Surveillance”, Surveillance and Society, vol 3, no 1, pp. 1-20.

(Written, late 2009)

"People say reading Nietzche (sic) changed me".

"People say reading Nietzche (sic) changed me".
Drawn by Ann Debono, March 30th, 2007.

Update (13/04/2016): some newer stuff from Ann: here.