Marx has the last laugh

I cannot think of a better interlocutor than Chris Dilow. He raises another set of interesting questions in his reply to my reply. I am in danger of completely forgetting our original divergence of thought, but that bothers me not at all.

I have read a lot of Marx, and always want to read more. Marx is rightly regarded as the greatest social theorist. Marx was legendary synthesiser of thought. In this regard, Habermas – the greatest moral philosopher since Kant – is his true heir.

Marx also created a framework of making sense of social change, organisation and power which is unrivalled in its completeness and coherence. In addition to his profound perceptiveness, this very coherence and completeness appeals in its own right. But I feel a different form of intellectual affinity with Marx. The coherence he attributes to social evolution is also the weakness in his framework. Marx, if you take his writing as a whole, knew this instinctively. There is a coherent theory of social evolution to be found in his writings, but there is also repeated arbitrary divergence from this theory and creative, chaotic asides that make his writing so absorbing. We can thank Marx for providing a theory of social change, a theoretical ‘ideal type’. It is a model that it almost always pertinent, but – perhaps always – incomplete, and often completely misleading.

A perspective I have long held about markets I partly attribute to Marx. It is actually an argument for the moral force of markets (not capitalism, per se, but certainly markets) – that free exchange is the antithesis of tribalism. The great French anthropologist, Marcel Mauss, put it most succinctly: “In order to trade, we must first lay down our spear”. Marx, too, saw very clearly how global capitalism could be the enemy of tribal nationalism.

Perhaps intriguingly, I also want to bring Hayek in here. Hayek, Marx and Mauss view markets in ways which are far more instructive than that present in microeconomic textbooks. And here simplistic economic ideology has hindered understanding. So, one evolutionary function of markets is as a positive-sum method of conflict resolution. Everyone should be aware of this. If we perceive there to be a finite resource – say oil – let us use prices to determine who gets what, and incentivise the invention of substitutes. It’s better than the alternative.

Hayek diverges from the standard micro-theory of markets by assuming imperfect information – quite rightly – and focussing on the role markets play in processing information. This too is profoundly insightful. In Hayek’s view, capital seeks informational advantages – this is a motivating force. If we already knew everything, we would do nothing. The pursuit of ‘excess return’ is the very lifeblood of innovative and dynamic capital.

Hayek’s observations on the distribution of information are equally important. His critique of central planning significantly resides in the insight that the most important information is local to the individual and unobservable – it is in our heads. Only the individual knows what they want at any point in time.

As an aside, it is worth noting that Keynes, unsurprisingly, was the most astute psychologist in this cannon of thinkers on the motives of capital. He was totally open to the likelihood that many of the greatest investors – i.e. those that had the longest time-horizons and made the greatest contributions to human well-being – were motivated by nothing more than fascination at what could be achieved.

How does any of this bear on my discussion with Chris? My sense is that the motives and forms of capital at work in our societies are more diverse than at any point since the industrial revolution. As Mark and I argue in Angrynomics, deregulation has set capital against capital, and asset price delusions add spice to this chaos. Myopic speculators finance blue-sky infinite-horizon destroyers of capital, such as Elon Musk – the world’s embodiment of a Keynesian investor. Somewhat hilariously, a new form of elite social status – start-upism – is fantastically anti-capital, and its effects are super-charged by the secular collapse in the cost of semi-conductors. Despite its importance, none of this was predictable.

I struggle to see capital as the obstacle to progress in this world. If anything, a chaotic series of capitalist motivations – a collapse in the cost of debt to the state and a plethora of extraordinary technological innovations – have provided us with the very means to tackle our greatest challenges. The failure of innovation is in public policy and democratic process.

This leads me in conclusion to more a ominous question. Hayek explained why China could not succeed. Central planning doesn’t work because the most important information is in our heads – only we know what we want to do. Really? Why has China progressed more rapidly and pervasively than any other major economy in AI, machine learning, fintech and social media. Because the contents of our minds is now available to the social planner. Is Marx about to have the last laugh?

About The Author

Eric Lonergan is a macro fund manager, economist, and writer. His most recent book is Money (2nd ed) published by Routledge. He is also a supporter of Big Issue Invest (BII), the investment arm of The Big Issue, and is one of the initial limited partners in BII’s Social Enterprise Investment Fund LP. In a personal capacity, he makes direct investments in social enterprises. He also supports and advises The Empathy Museum.

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