Research Topics

If Adam Smith Is the Father of Economics, It Is a Bastard Child

Neoclassical economists of the current era frequently pay lip service to Adam Smith’s theories to certify the validity of natural-laws-based, laissez-faire policies. However, neoclassical theories are fundamentally disconnected from Adam Smith’s notion of value, his understanding of the economic individual and their interactions in society, his methodology, and the field of study he afforded to political economy. Instead, early neoclassical economists parted ways with the theories of Adam Smith in an effort to construct economic laws that would validate the existing capitalist order as universal, natural, and harmonious.
 

What is called “capitalism” is best understood as a series of stages. Industrial capitalism has given way to finance capitalism, which has passed through  pension fund capitalism since the 1950s and a US-centered monetary imperialism since 1971, when the fiat dollar (created mainly to finance US global military spending) became the world’s monetary base. Fiat dollar credit made possible the bubble economy after 1980, and its substage of casino capitalism. These economically radioactive decay stages resolved into debt deflation after 2008, and are now settling into a leaden debt peonage and the austerity of neo-serfdom.

The end product of today’s Western capitalism is a neo-rentier economy—precisely what industrial capitalism and classical economists set out to replace during the Progressive Era from the late 19th to early 20th century. A financial class has usurped the role that landlords used to play—a class living off special privilege. Most economic rent is now paid out as interest. This rake-off interrupts the circular flow between production and consumption, causing economic shrinkage—a dynamic that is the opposite of industrial capitalism’s original impulse. The “miracle of compound interest,” reinforced now by fiat credit creation, is cannibalizing industrial capital as well as the returns to labor.

The political thrust of industrial capitalism was toward democratic parliamentary reform to break the stranglehold of landlords on national tax systems. But today’s finance capital is inherently oligarchic. It seeks to capture the government—first and foremost the treasury, central bank, and courts—to enrich (indeed, to bail out) and untax the banking and financial sector and its major clients: real estate and monopolies. This is why financial “technocrats” (proxies and factotums for high finance) were imposed in Greece, and why Germany opposed a public referendum on the European Central Bank’s austerity program.