Economics for the last 30 years has been presented as an ideological scrap between neoliberalism and Keynesian government intervention.
The current strain of neoliberalism has its foundation with the Austrian school economist Friedrich von Hayek, and the circle around him, the Mont Perelin Society.
At the time of his writing in the 1920s neoclassical economics was accepted as the norm and his insistence on his small state liberalism was seen as charming and rather quaint.
The Hayek interpretation of capital was a system destined to fail on a colossal scale, but this constructive destruction of capital could be cleansing and restore profitability to the firms fit enough to survive.
Then came the global recession following the New York stock market crash of 1929.
Capitalism failed to regain profitability through driving down wages and releasing cheap hardware from bankrupt companies.
After a period of expecting things to return to what Hayek described as “spontaneous market order” panicked and began massive intervention.
The ruling class searched for a theory to fit their practice and turned to John Maynard Keynes, who already argued for state intervention.
He said capitalism was no longer about individual companies thrashing around in open space but national economies that national governments should nurture.
Keynes wrote in his 1936 General Theory of Employment, Interest and Money:
“I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment”
The Second World War and the Bretton Woods agreement placed the United States in a position of global dominance.
This gave rise to hydraulic (or bastardised) Keynesianism: the acknowledgment that some companies had become too big to fail.
For example, in the American motor industry there were thousands of manufacturers banging out cars in 1914 and if went bust then, beyond the factory workers, no one much cared.
Just six years later 120 car companies survived, then by the time of the great crash there were just 44. Now there are three, with General Motors the most dominant - despite being on the verge of expiring.
The concentration of capital means that national governments can no longer collect the bins, run a few schools and let the corporates get on with the serious business of doing everything else.
Companies in fact became too big to succeed. They could no longer generate enough profits to fund rapid expansion.
They turned to financial capital. In 1950 just 25 percent of financial spend came form borrowing compared to 65 percent less than 25 years later.
At the same time, the cost of telecommunications and transport collapsed allowing national companies to trade internationally on a far greater scale.
It wasn't long before the economy was again on its uppers, with a major financial crisis arriving in 1971.
The abandonment of Keynes and his fancy ideas about managing boom and bust were, in a word, bust. Neoliberalism was back.
James Callaghan told the 1976 Labour Party conference: “ We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending.
“I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. ”
Cometh the hour: Margaret Thatcher will always be the personification of neoliberalism and around now she was busy reading dusty editions of Friedrich von Hayek work.
In 1975 she surprised even herself by winning the leadership of the Conservative Party and four years later she was Prime Minister.
The formula was simple, and instinctive to her party: destroy the trade unions, drive down wages and restore profitability.
This was an international affair and in the US the average male worker in 1995 found he was working an extra 1,900 hours for the same wages he earned twenty years earlier.
This was the age of multinational institutions such as GATT (which became the WTO) driving through unilateral agreements and ripping up the Bretton Woods agreements at the behest of the US.
In the UK the buzz word was deregulation, culminating in the City of London's big bang in 1986 and a spike in Champagne and cocaine sales.
World trade exploded. Political opposition was destroyed in a wave of “shock” treatments handed down by the IMF.
Social Democratic parties, such as Labour, rolled over. The Miners' Strike was crushed. Democracy in countries like Chile destroyed.
But did it work. Manufacturing profits in the world's three most powerful countries continued to fall.
World GDP stagnated at one percent in 2003 compared to 3.6 percent in the glorious 1960s.
And the hard facts also reveal that despite the protestations of Thatcher and her neoliberal colleagues around the world, the state did not wither away.
Government expenditure remained a massive and growing share of GDP from Japan to the United States and the European Union.
And big government still intervened: with the US saving Savings and Loans in 1985, the
Exchange Rate Mechanism across the EU in 1992 and again America stepping in to shore up Long Term Capital Management six years later.
Then capitalism discovered the adrenalin of debt: rather than throwing money at road building as Keynes may have advised they stuffed the money into the pockets of consumers.
Mortgages and personal dept bubbled, allowing people to spend recklessly in Ikea without wage increases (and the threat of inflation).
The bubble has now burst and the boom and slump of capital has come to the fore again. But this crisis is different.
And more drastic, because it effects the banks and not just financial capital. The economy could suffer the collapse of LTCM but not Lehman Brothers.
New Labour, along with the US and governments around the world, has been forced to end its addiction to neoliberalism.
The crisis so far has cost $4 trillion and resulted in $400 billion in direct state subsidy - something Friedrich von Hayek would have choked on.
Keynes cannot offer any answers. Corporations have now become so big that the influence of the state - which is still almost all encompassing - is less than during the 1930s.
General Motors, Google and Walmart can ignore governments to a greater extend than ever before.
They can also operate out of the purview of a national state, either in a rival country or hiding in an off-sure tax haven.
So unlike anytime in the last 30 years we are today in a space where liberalism has been tested to destruction but where is no more likely to provide a blueprint for recovery.
Capital in the short term can attack trade unions, drive down wages, hope that credit will miraculously come good. But there are no sustainable ways to recover profitability.
With Friedrich von Hayek and John Maynard Keynes now removed from the reading list, perhaps its time to dust off the collected works of Karl Marx.
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