In trying to craft some socialist concepts of finance, I’ve been reading about the history and theory of socialist economics in the 20th century.
Right now I’m reading more Joanna Bockman, this time her book Markets in the Name of Socialism: The Left-Wing Originas of Neoliberalism.
I’m a couple chapters in, and her account of neoclassical economics and socialism is fascinating and seems important for a socialist finance.
Her big argument at the beginning of the book is that the analogy ‘socialism is to state planning as capitalism is to markets’ is wrong.
Her proof is that neoclassical economics, the super-mathy theory of rational production that took hold after 1890, was both influenced by socialism and was used extensively by socialist economists doing national and international finance.
The neoclassical theory itself, she claims, was and is agnostic to the socialism/capitalism distinction. It’s just a ‘rational’ theory of production based on the helpful but non-existent ideal of finding equilibrium between actors.
Bockman says socialists are estranged from neoclassical economics and we should become reacquainted because entire socialist economies were run using neoclassical models, and neoclassical models use socialist concepts. (Neoliberalism, according to her, is a capitalist co-optation of socialist neoclassical models.)
So let’s get reacquainted!
All about tortillas
I learned about the basics of neoclassical economics and the ‘marginal revolution’ from Yani Varoufakis’s Foundations of Economics. I read it in a political economy reading group whose goal was for leftists to become more fluent in mainstream economics.
Varoufakis says the underlying principle of neoclassical economics is the ‘equimarginal principle’, which basically says that individuals, groups, firms, states, or any entity in an economy will always try to get the most utility for themselves. They do this by calculating whether or not any given decision is worth the cost of not doing it.
When I think about the equimarginal principle, I think about tortillas.
When my old housemate would make tacos, he’d take a corn tortilla and hold it over the open flame of our stove. He said it liked them toasted.
But it’s a subtle business: you have to pull the tortilla away from the flame at just the right moment before it burns. But pull it away too soon and the tortilla doesn’t get the special flavor.
Calculating utility at the margins is like having a tortilla over a flame, but all the time for any decision. The margin is the difference in time you hold the tortilla over the flame. Just long enough so that it doesn’t burn.
According to this principle (which is as psychological as it is calculable), our decisions happen at the margins: where we assign cost and benefit to increase utility.
Most leftists today hear the word ‘marginal’ and think ‘marginalized group’. That’s an anti-oppression concept of marginality.
But neoclassical economics has an accountant’s concept of marginality. These margins are the margins of cost-benefit analysis, like the margins of a banking book where you see gains and losses.
Bockman says that marginal economics was marginalized on the left because of the Cold War (communism and socialism are fascism and totalitarian and authoritarian blah blah blah) and ascendent rightwing economists (Hayek strikes again) who said you couldn’t calculate prices in socialism.
But that’s wrong! Think about Yugoslavia’s self-management system and socialist banking post-1948 and the entire non-aligned movement. Think about Hungarian market socialism. Think about the Soviet economists who used neoclassical to calculate linear modeling.
Socialist economic rationality?
I’m looking forward to the rest of the Bockman book to see how Yugoslavia, Hungary, and others implemented neoclassical thinking in their socialist economies. (I’m also reading a marxist history of the Federal Reserve along these lines.)
What I’m thinking at this moment is that socialism is a rational approach to production. But economic rationality is wide. Justice, cooperation, solidarity, and working class-oriented principles are rational. We can have a socialist economic rationality. A socialist finance would have such a rationality.
It’s the neoliberals, really the libertarians, that narrowed economic rationality to private property. There can be socialist concepts of competition, markets, and pricing. We can calculate, plan, and advocate for policies based on that rationality.