Tuesday, November 30, 2010

Financialism and the Disappearing of Labor From Economics

Previously, I noted that classical economics (exemplified by Adam Smith and David Ricardo, for example) analyzed economics in terms of capital, labor and rent.  In response to the criticisms of Henry George and his proposed Single Tax, which would have eliminated rent, the rentiers funded the founding of neoclassical economics which analyzed economics solely in terms of capital and labor.  In response to socialism and Keynesian theory, which would have elimintated rents, if eliminated, the rentiers funded the founding of the neoliberal movement, which included both social instutitions and a new form of economics, which most people still call neoclassical economics but which I believe is more properly called neoliberal economics because of its origins and aims.  In my original post about Henry George, I intuitied that neoliberal economics had disappeared labor, just as neoclassical economics had disappeared rents.

My conclusion that neoliberal financial theory is normative and renders traditional economic theory inoperative confirms this: the only thing that matters in the economic decision-making of firms and governments is capital and yield.  Under financialism, labor is merely a cost that factors into the calculation of yield.  Nothing more, nothing less. 

I suppose that I shouldn't be surprised that financialism was the real end game.  Neoclassical economic theory has its roots in classical liberalism: both microeconomics and macroeconomics were consructed and sold as scientifically proving that laissez-faire economics and free trade benefited society as a whole.  But as I said before, the primary goal of neoliberalism was to excise the "communistic fiction" from Smith's Invisible Hand, to establish that firms had no social responsibility.  Unfortunately, neoliberal macroeconomic theory-- whether from the Chicago or Austrian schools-- cannot satisfy that ultimate goal, as both must be sold as achieving the greatest benefits to society, and they are.  A higher level of abstraction-- finance -- was required to achieve the goal. 

As Michael Hudson has said, what we're seeing is nothing less than the Counter-Enlightenment, which I believe will result in international neo-feudalism.  Hudson has a new piece out here.