Economic Update: The "Great Debate" That Wasn't

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Throughout capitalism's history, the big topic in economics was how far government should intervene in the economy. Conservatives wanted minimum intervention while liberals and socialists wanted much more. In fact, government intervention mostly aimed at saving, protecting, supporting capitalism. The genuinely "great debate" could and should have been about the strengths and weaknesses of capitalism versus those of a real alternative system, socialism.


Transcript has been edited for clarity

Welcome friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, jobs, debts, incomes- our own, and those of our children. I’m your host, Richard Wolff. Today’s program is dedicated to something called the “Great Debate” in economics. It has been the Great Debate and treated as such for most of the last 300 years- really the time of capitalism in the world. It’s been thought of as the great issue by politicians, academics, journalists, as well as economics specialists. But I’m going to be arguing today as I go through it that it shouldn’t have been, that it really never was what the Great Debate could have and should have been, and indeed, that it was hiding what the Great Debate ought to have been, and I want to expose all of that with you. It’s very important, more now perhaps, in the history of modern capitalism, than at any time. So let’s begin.

As far back as Adam Smith and the very beginnings of modern economics, there has been a focus on a criticism that modern economists had of the old feudal governments, the lords, the kings, and all of that that preceded capitalism. Adam Smith was a great devotee of capitalism. He thought that we should break out of the old feudal ways of lord and serf, welcome a new system where there were no lords and there were no serfs, where everybody was a free individual and could bargain and seek his- I was about to say “or her” but in those days the hers were rarely heard from. Every man would bargain his way forward and seek his freedom to contract, to negotiate. Capitalism would see the worker bargaining with the employer for a job. This capitalism, as it came to be called, this new system would have no need of the oppressive kingdoms of the past, of those royalties, which is how feudalism in Europe ended. And remember, the French Revolution was a revolt against kings and all of that the American Revolution was. The whole idea was we were now going to have a civil society, a society in which the important things are done by private, free individuals, and the government is given a very minimal role. The French language, which was the way many of these ideas were formulated, came to call all of this “laissez faire,” “let it be” in French. The government should let it be- let the economy be run, organized, worked out by private individuals entering into private contracts to buy and to sell, to work, etc.

Down through the last 300 years, the whole idea of economics was kind of condensed into a debate between those who believed in laissez faire, who wanted the government to butt out of the economic system- that was one side. But it was always haunted by another side of this debate, a side which said: “Don’t be so quick you laissez faire people. You have the government out of the economy, you’re going to get yourself into serious troubles. Capitalism has flaws. Capitalism has failures. Private negotiations between workers and employers can and do and will break down. Private deals worked out between buyers and sellers can and will turn sour, and need to be resolved. And at that point, who are you going to turn to? You’re going to let everybody fight it out? We’ll have chaos in the street. We need the government. The government has to be in there, not just to umpire the private system, but to come in and adjust it and fix it and make sure its flaws and faults don’t spin out of control.” And so we’ve had it, we’ve had this great debate. Really what it’s about- How much government intervention should there be? When should it happen? How should it happen? How long should it last? How deep should it go?- those kinds of questions versus those who want the government to butt out, to be minimally involved, etc.

So, in economics, this is called the debate between Neoclassical economics and Keynesian economics. Neoclassical, because it harks back to those laissez faire days, when economics and capitalism were first begun. And why Keynes? Because in the biggest failure and breakdown of capitalism in its history- the 1930s, the Great Depression- the leading economist in Great Britain, one of the great powers of the world at that time, was John Maynard Keynes. He developed an analysis which said you need the government to come in and get us out of this terrible depression, and keep us out of the next one, because the next one will come if we don’t have the government involved. So there it is, the debate again. Keynes: more government. Neoclassicals: less government. Here’s some other names for the same debate here in the United States. You’ll often hear it referred to as conservatives- those who don’t want the government involved all that much- versus liberals, those who do. Franklin Roosevelt: a big liberal. The Bush family: conservatives. Then in Europe they have, again, different words. It’s a bit confusing but you’ll get the idea if you hold on to the notion of what the big debate was said to be: more or less government. In Europe, the people who want less government and want to go back to the laissez faire are called neoliberals. It’s confusing, as I told you. And who are the people who want more government intervention in Europe? They’re called social democrats. The names vary but the issue- it’s the same one.

Okay, what is this debate about and why is it important? Well, it turns out it’s important because capitalism- private capitalism undertaken by private enterprises free to engage in their businesses by making contracts with their workers to work, with their customers to buy, etc.- this kind of a capitalist economic system’s key dimension is the separation of the people who do the work into two groups: those who run the enterprise- the employer, and those who do what they’re told when they come to work each day at the enterprise- the employees. Capitalism is a system characterized and distinguished by employer-employee, and that’s what makes capitalism different from the earlier systems that preceded it. For example, feudalism, which is divided between the lords and the serfs- the lords have the power. The lords sit at the top of this system. The lords tell the serfs what to do, how to do, and when to do it; or the slave system, which once again divides people into masters and slaves, and you know who’s on top and who isn’t.

Capitalism, it turns out, runs itself into big difficulties like the Great Depression when it collapsed, and we’ve had them since, haven’t we? We had the Great Crash of 2008 and 9, when the system fell apart on its own because of who it gave mortgages to, and then who developed all kinds of financial instruments based on all of that. It blew up the house of cards of credit, and the system collapsed. We had it again with the coronavirus, and we’ve had many before. Sometimes these crashes are short and shallow, sometimes the crashes cut deep and last a long time. But what is interesting is whenever the crashes have occurred- bad ones, not so bad ones- the cry went up in a capitalist system: “We need help getting out of this mess. We need help getting through this mess.” They turned to the government, and in comes the government to help out, to fix things, to undo bad outcomes, to re-juggle the system to make it work again, and boom- here comes the debate again. Should we have the government in here a long time or a short time? Should it do a lot or should it do a little? The same debate again, and again.

Some examples just to make sure we’re all on the same page. The biggest intervention in modern capitalism is still the one in the Great Depression lasting from 1929, basically to 1940-41, a very long time. Massive government intervention here in the United States: the creation of the social security system, the creation of federal unemployment insurance, the passage of the first minimum wage, and the creation of a federal jobs program that hired 15 million unemployed people to do federal jobs to make the society better- jobs in enterprises owned and operated by the federal government, not seeking profit. They didn’t care whether they made profit or not- that’s not what their purpose was. It was to fix a system that had been broken by companies whose first goal was to make profit, but as they went about it, they blew up the system. So Roosevelt came in, and he did what? He did the things I just mentioned, but his goal,
which he never denied, was to fix and to save capitalism. He didn’t set about to get rid of it. He didn’t set about to go beyond it. He didn’t like socialists and communists who talked about going beyond capitalism. He was never one of them- didn’t like them. What was he? Was he for the government intervening? Yes, but he wanted the government to intervene to save capitalism.

So now notice, and this is so important, that the debate between the people who want more government versus the people who want less is not, was not, and is not now a debate over capitalism versus other systems. Not only wasn’t it about that, it was designed to displace that conversation, to prevent it, to push it out of the agenda of modern society. We were supposed to discuss more or less government with the understood assumption of all sides in the debate that capitalism was the best thing since sliced bread. Nobody could, should, or might want to go beyond it. That’s not what we’re discussing. We’re discussing about the government coming in, what it could and should do to save capitalism, and the conservatives’ really only argument is that the government that comes in saying it’s going to save capitalism might inadvertently do the opposite. It might try to save it and in doing so hurt what it was trying to save, which is always a risk when anybody tries to help with anything.

Okay, we’ve come to the end of the first half of today’s program. We’re going to be discussing in detail this so-called Great Debate and what it hid as opposed to what it really could have and should have done. Please remember to subscribe to our youtube channel. Follow us on Facebook, Twitter, and Instagram. Be sure to visit democracyatwork.info, our website, to learn more about other Democracy at Work shows, our unionized co-op store, and our two published books: Understanding Marxism, and Understanding Socialism. Lastly, a special thanks to our patreon community, whose invaluable support helps make this show possible. We’ll be right back with more on this important topic.

Welcome back friends, to the second half of today’s Economic Update. This program is devoted to that Great Debate we talked about, the so-called debate between those who want to minimize government intervention, and those who want to have significant, maybe even ongoing, government intervention in managing the economy. Before the break we had spoken about the biggest example, Franklin Roosevelt’s New Deal in the 1930s, but I want to assure you that that debate is always going on not just in the journals of the economist but everywhere else. So for example, both George Bush and Barack Obama intervened massively in 2008, 2009, and 2010, and so on in the economy. Both a republican and a democrat, both a conservative and a liberal. So part of the debate is a debate about emphasis because the idea that you could ever really do without the government isn’t a serious proposition in economics. Let me drive that home for those of you who might still in this day and age be surprised by that.

Money. What is more important in capitalism than money? Well, the government is in charge of the money- the government prints it, the government circulates it, the government regulates it, the government decides when there’s more and less of it, the government shapes the interest rates we charge one another to lend and borrow- what could be more important than that? And, a great deal of our foreign policy of our military around the world is designed to either open or protect lines of trade, lines of investment, lines of loans and debts. The minute you look into it you’ll see that the government is everywhere. When there’s a dispute between two capitalists, you know where they go to resolve it? To a court of justice. You know who maintains the court of justice? Yep, the government does. If an employer is upset and the workers at his or her plant are upset and they get angry at each other and the anger begins to mount, you know who the employer calls to protect himself? The government, the men in blue and the women in blue who come and protect. Government is everywhere and increasingly very important, literally every day.

So, the debate is between people who want a bit more, a bit less- not really about the government. “Get out of the economy” may be a slogan you hear from an overactive enthusiast for the conservative point of view, but it isn’t serious, and it never was. Capitalism has needed the government at every step of the way. What liberated American capitalists from the control of feudal King George III was a military operation undertaken by the government of the United States, whose president you all remember as George Washington. In 2016, Mr. Trump rode into office as a republican. But his interventions in the economy, the governmental intervention, started literally the day he became president. Let me remind you all: A tariff is a tax. Mr. Trump is known around the world as Mr. Tariff- that’s Mr. Tax. The tax is an act of the government that intervenes in the economy by changing what things cost for everybody. Pulling money out of the hands of private businesses- that’s what a tariff does. Government intervention everywhere: hounding companies that move production to Mexico, hounding allies who don’t deal with the United States in the way Mr. Trump wants, using governmental interference in literally trying to reorganize the world economy. So yes, government. The debate more or less is really only about emphasis, nuance- it has none of the fundamental quality that a so-called Great Debate really ought to have.

So now, let’s get to the punchline. There has been something that hasn’t been discussed, that never rose to the level of the Great Debate, but I’m here to argue that it always looked behind. It was the real debate which we kept away by arguing instead about something else. You know, it’s like a couple having difficulties in their relationships and having very heated debates over the dog, and where the dog should sleep, and what the dog should be fed. With a little help from a good therapist, the couple would realize that it's not the dog that’s the problem here, they have to figure out what it is in their relationship, and so it is with economics. What was the debate behind the so-called Great Debate? The answer is the debate that always should have been number one because in a healthy society it ought to be. And that debate is: What about the system we have? Could we do better? Is there an alternative system that would better meet our needs? We know, in a way, that that’s the fundamental debate because in the end, it was that debate that helped bring the end of slavery. People decided, and not just the slaves, some of the masters too, understood that system was not the best way to organize human communities, and so people got rid of it. Exactly the same thing happened with lords and serfs. The debate there also: Can we do better than feudalism? And they figured it out and they decided to go beyond feudalism and they created capitalism, which is what we have. Had we learned the good lessons, we would have known that the Great Debate always in a way was lurking the debate between capitalism and an alternative system, and that’s a radically different debate than the debate between more or less government.

As the examples I’ve given you show you- whether it’s Roosevelt, or Bush, or Obama, or Trump- there’s always been massive government intervention, and it’s always had the same purpose. Roosevelt, Obama, Bush, Trump. The purpose was to fix capitalism, to repair its faults, its failures, to make it work, to save it, to preserve it. Governmental intervention per se doesn’t tell you anything about the real big debate- capitalism versus an alternative- because government intervention, short or long, shallower or deep, has overwhelmingly happened in all systems. To preserve that system, it’s very, very rare for a government to overturn a system. It’s usually that the revolution against the system happens inside the system and also gets rid of the government, and you know why? Because the revolutionaries figure out pretty quick that the government is preserving the system they want to change, so it’s their enemy too. It’s their enemy too, and imagine if you get this, how bizarre it is that there are people who believe that when the government intervenes more, it’s socialism, it’s some other system. No, it isn’t. It never was with Mr. Roosevelt, or Mr. Bush, or Mr. Obama, or Mr. Trump. They want to preserve capitalism. They are the winners in capitalism. They’ve risen to the top in capitalism. Of course they’re not the enemies of capitalism. Do they make mistakes? Of course they do. Do the heads of private corporations make mistakes? Of course they do. That's not the point. The point is the government is almost always the servant of the system in which it exists.

Governments in modern capitalist societies- you know how they work? Their leaders are drawn from the corporations in which the government depends. It’s the same people. They just change their hats, and not for very long either. The heads of our military- you know where they go when they finish their tours- the generals, the admirals, the folks at the top? They go sit on the boards of directors of the companies with which the military does business, and so it is across the line. Where do the politicians get the money to get into office? The corporations and the people who run them give them the money. And how do they know how to write a law, and what to do when they’re sitting in Congress? Because corporations have armies of lobbyists who do all that work for the elected representatives. Of course the government is in bed with the capitalist class, the employers- that’s who they are.

Socialism has nothing to do with whether the government is more or less involved. Socialism, at least in the ideas of those most usually associated with the idea, is really a radically different system- a system that isn’t master or slave, or lord or serf, or employer or employee. It is a system in which the workers finally stop being slaves, stop being serfs, stop being employees, and become their own employer. It’s what we call on this program “worker co-ops”; workplaces in which the workers democratically decide- one worker, one vote- what we’re going to produce, how we’re going to produce it, where we’re going to do the production, and what we’re going to do with the fruits of our collective labor. That’s a democratic economic system. That’s the debate that lies behind the so-called Great Debate. That’s the one we’ve been afraid for so long to debate. It’s the debate that begins with this question: Can we do better than the economic system we now have? By which, we mean the system that divides every workplace into a small minority that has all the power, the employer, and a large majority that has to do what the employers decide. That’s not a democratic system, that’s the opposite of democracy.

And so, the real debate is what about that? How would these two systems differ? What are their strengths and weaknesses? Because they both have both; this is not some childish- all the good over here, all the bad- hopefully we’re beyond that. But let’s not stay with a debate that isn’t fundamental about more or less government. You know slavery had more or less government, but it was all slavery. And feudalism had more or less government, but it was always feudalism. And guess what? Capitalism has had more and less government intervention, but it was all capitalism, it was all employer versus employee. The real question, the real debate is why are we stuck- and I use that word advisedly. Why are we stuck in a system of employer-employee when there is an alternative, and when we could be asking questions like would we have been better off in the Great Depression if we had changed the system to a worker co-op based system? Might we have prepared differently or better for the coronavirus if workers made the decisions rather than capitalists? Come on folks, that’s the real debate, and it’s time to put aside the substitute debate over more or less government that has fascinated economists for 300 years, and to recognize that that fascination was in large part fear about asking the question of a new and different system and how and why we ought to be talking about that.

This is Richard Wolff. Hope you found this interesting, and I look forward to speaking with you again next week.


Transcript by Elain Rabady
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Showing 2 comments

  • Pasqual DiGesu
    commented 2020-07-21 14:08:42 -0400
    “F. D. Roosevelt himself called Mussolini “admirable” and professed that he was “deeply impressed by what he has accomplished.” The admiration was mutual. In a laudatory review of Roosevelt’s 1933 book Looking Forward, Mussolini wrote, “Reminiscent of Fascism is the principle that the state no longer leaves the economy to its own devices.… Without question, the mood accompanying this sea change resembles that of Fascism.” B.M. (article by David Boaz).

    For use of a nicer word lets say “forced socialism”, This lesson taken by FDR allowed the entry into America or the import of Social Security, establishment of controlled unions which were previously attacked, workers rights recognized, state funded jobs versus uncapped cost contractors for public works, controlled market / product economics etc. etc. (new deal).

    Today I am hearing that Universities are being sued for tuition reimbursement for not being able to provide classroom education. Of course this is understandable since the cost is astronomic even for public schools through outrageous property taxes which have a hook in our purchased and payed for homes here in NY. Unlike other nations where the allocations for education are palatable because they are cost controlled and state funded, the impact falls under the radar. But we live in an “uncontrolled” capitalist nation so law suits are part of the game rules, its all business not personal Don Corleone. How was it once said? “The chicken have come home to roost”… or “Capitalism hits the fan”.
  • Dwight Clark
    commented 2020-07-21 12:03:55 -0400
    Greetings Professor Wolff and Associates. I watched your recent visit on Moats- no clear view on outcomes, and have listened to above video. Let me be the 1st to offer another contender for affluence and outcome to the difficulties involved. Please ref. Commentaries on Hill, to much to bring up to speed here, Bathsheba wife of Uriah the Hittite David This is the God that delivered from Philistia gold into water this propagational, Shebat- Mother of All the Living Tefnut with creational Cycle composits, Mother of The Gods Titans Greece, Rome Europe, then England 13 Colonies aquiring reverse directionals to Europe brillance of Europe began to dim, objective not of Gods Titans but big Israel WW2 Europe Germany small Israel with German military capabilities 1948.. Britexit this country Israel removed, Replaced, Now Gods Titans Greece Rome Europe New World Marshall with Star. Israel Disk used 1996 Marshall takes priority, no corona virus no wtc horus in china ubadian here, no stomping monsters…This is The Contender at the Poker Table, A Royal Flush? Im going to play it, Make Mr. Macron Jupiter proud, and hope for your good considerations as well Professer Wolff.

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