Macroeconomic Theory and its Failings

Macroeconomic Theory and its Failings

Alternative Perspectives on the Global Financial Crisis

Edited by Steven Kates

This innovative book focuses on the current global financial crisis and the inadequacies of the economic theories being used to guide policy. In so doing, it tackles the economic theories that have been used firstly to understand its causes and thereafter to contain the damage it has brought.

Chapter 4: Looking at the Crisis through Marx – Or Is It the Other Way About?

Ben Fine

Subjects: economics and finance, financial economics and regulation, radical and feminist economics

Extract

Ben Fine INTRODUCTION Orthodox economics has in part seen financial markets as an efficient way of mobilizing and allocating resources, and thereby coordinating information through the market system and across its agents. As the variously infamous former US Treasury Secretary, Chief Economist at the World Bank, and Head of Harvard Larry Summers has described the efficient market hypothesis, cited in Davidson (2008a), The ultimate social functions are spreading risks, guiding investment of scarce capital, and processing and dissemination the information possessed by diverse traders . . . prices always reflect fundamental values . . . The logic of efficient markets is compelling [original italics]. The logic today is less compelling, not least to the bankers themselves, who had previously deployed it to rationalize what is now being revealed to be a reality of inefficient, dysfunctional and parasitical markets. At best, the mainstream sees this as some combination of corruption, imperfect coordination of markets, and their imperfect institutions and regulation. What is notably absent is any systemic understanding of finance in its relationship to capitalism in general and to its current character. Such approaches, from Keynes through to varieties of post-Keynesianism, with Minsky to the fore, have been marginalized by the mainstream in light of its obsessive preoccupation with the optimizing, if imperfectly coordinated, individual. Even before the current crisis, the idea that finance more or less efficiently mobilizes and allocates resources on behalf of the real economy bordered on the ridiculous. In the UK, formerly the workshop of the world, does it take half a million...

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