Wednesday August 27th, 2014, 9:02 pm (EDT)

Dear Reader,

We place these articles at no charge on our website to serve all the people who cannot afford Monthly Review, or who cannot get access to it where they live. Many of our most devoted readers are outside of the United States. If you read our articles online and you can afford a subscription to our print edition, we would very much appreciate it if you would consider purchasing one. Please visit the MR store for subscription options. Thank you very much. —Eds.

Refuting the Big Lie

Hugh Stretton, Economics: A New Introduction (Pluto Press, 1999), 864 pages, $90 hardcover, 35 paper.

Doug Dowd lives in San Francisco and Bologna. His most recent book is Capitalism and Its Economics: A Critical History (London: Pluto Press, 2000).

Capitalism was first firmly established in Britain in the eighteenth century and it was then and there that economics was born, in Adam Smith’s Wealth of Nations (1776). Economists have served capitalism ever since, but only in the past quarter-century has capitalism needed—and gotten—so much from them.

As the twentieth century began, given the intrinsic inequalities of capitalism, the existence of political democracy in almost all capitalist nations constituted an ongoing threat to capital’s rule, a threat intensified by capitalism’s tendency toward intermittent economic crisis and socioeconomic weakness.

For much of the nineteenth century, economics tended toward ideology; by its end, it was pure ideology. But ideology alone was no match for the challenges of the new century.

In the first half of the twentieth century, the crises were so pervasive and became so deep that economists could propose nothing to avoid or alleviate them. When something was proposed, as with Keynes during the depression of the 1930s, neither capital nor most economists took heed before the Second World War—except in Nazi Germany, which invented the military Keynesianism that undergirded capitalism in the decades of the Cold War.

And what about economics? The years after the war were also the years in which business had lost its unchallenged power and prestige, having laid a very large and rotten egg before the war, as had mainstream (“neoclassical”) economics. A substantial group of “new economists” had also come into being, “educated” by the depression, the New Deal, and the war, aware and supportive of the need for socioeconomic reforms. Their ideas and policies were effectively shaped by the then-relatively powerful labor movement and a liberalized public, with significant support from those in big business who had learned from the war just how useful governmental (especially military) expenditures could be. Not for nothing were the two decades or so after the war called Cold-War liberalism.

Global economic expansion took hold as the 1950s proceeded, and the following decade was the most expansive ever, aided and abetted by the Cold War. But superstate or no, capitalism’s laws of motion had only been modified, not repealed.

In the early 1970s a unique and deep crisis—called stagflation—began to surface; by 1974, it had become global. Simultaneous, severe, and sustained increases in both unemployment and prices occurred. Capital had realized in the fifties and sixties that it could tolerate a bit of shared power and the costs and taxes of the warfare-welfare state, only so long as their sales and profits kept them ahead of the game. But the global excess capacities of the seventies ended that particular honeymoon.

Thus began what Richard DuBoff has aptly termed “the corporate counter-attack.” It was an attack whose main aims were to weaken unions and get rid of the social wage in both the private and public spheres: to return to the raw capitalism of yore.

Corporations could not and did not fight that battle alone. They assiduously and successfully increased their efforts to influence public opinion through the media, and it was then that their political “contributions” began their quantum leap toward present levels, and achieved the key victory of placing Ronald Reagan in the White House. Reaganomics was initially seen as laughable and its policies as some combination of stupid and cruel. Now the policies are taken as common sense, and the economics as the new gospel.

It is that virtually unchallenged economics that Hugh Stretton effectively demolishes in his superb book. He is a great teacher; he writes clearly and without the priestly air so common to economists. His scope is extraordinary in its combination of breadth and depth; by comparison, other texts rightly seem both absurd and pretentious.

Stretton’s economics answers the two big questions that serious people have been led to believe economists do answer, but which they really do not: “What do we need to know about how the economy functions?” and “What can and must we do to make it meet human, social, and environmental needs?” Rather than answering such questions, mainstream economics spreads capitalism’s big lie: “What’s good for business is good for everyone, everything, everywhere”: which is then delivered daily by the media and politicians.

Stretton puts another economics in the place of the big lie: an economics that we need and can understand and use. Stretton is an Australian who studied in his own country, in England, and in the United States and who did a stint in government. He knows what he’s talking about; he also knows that experience itself does not guarantee good sense. Here a few excerpts in which he comments both on the importance and the wrongheadedness of today’s economics:

The resort to deregulation, privatization and smaller government since the 1970s proves to have been a mistaken response to the new troubles of “stagflation,” and an active cause of some of them. Economists share responsibility for that “right turn” in economic policy. Without their expert authority it is hard to believe that the various political and business groups who drove the new strategy could have persuaded majorities to support it, or tolerate it, for so long.(ix)

He goes on to say that “bad economic theory can cause as much suffering and death as bad medicine or engineering can,” and lists some of the dangerous beliefs that fill textbooks and serve as an ongoing rationale for public policies. Here are a few:

Monetary restraint alone will stop inflation and then revive employment-in conditions in which it won’t do either.

Reducing public investment will increase private investment- when in fact it will reduce private investment.

Free trade and exchange will make our manufacturers efficient – when in our particular circumstances it will put too many of them out of business, increase long-term unemployment, and wreck our balance of payments.

Cutting wages would increase employment – when it would not.

Shifting taxes off the rich onto the poor will induce the rich to employ more of the poor – which it will not (63, emphasis in original).

And then consider this statement on globalization. You will find nothing like it in any mainstream text:

Globalization…is a program to create private corporate rights to trade, invest, lend or borrow money and buy and own property anywhere in the world without much hindrance by national governments. It would bar governments from most of the common methods of helping or protecting their national industries and employment. It is a winners’ program promoted chiefly by some business interests, governments and neoclassical economists in Europe and the United States. One of its purposes is to intensify international competition for jobs. Together with other Right policies it is likely to maintain some unemployment in the rich countries and reduce the wage rates of their lower-paid workers, and reduce the proportion of secure employment (179-180).

MR readers likely already take the positions of those quotations and many others like them. So why work through such a long book? Because if people like us are to be politically effective, we must be able to gain a firm grip on why the ruling ideology is not only rotten but wrong, in general and in particular. But, as the great Italian Marxist Antonio Gramsci put it long ago in another context, it is equally essential to offer an alternative set of analyses and connected policies, in this case, another economics that supports a much different, much better society.

Ah, it may reasonably be said, but we have Marx, and Baran, and Sweezy, and not a few others. True. But it is also true that the powerful critique of capitalism provided by Marxian political economy, necessary though it is, is not sufficient for the political movement we require.

In our own time and place, capitalism controls not only the means of production and thus the conditions of work but also, through formal and informal education (known as propaganda when others do it), has come to control the hearts and minds of the people, even of those who sense in both their hearts and minds that something is terribly wrong. There has never been a time when the ruling ideas of the ruling class have saturated popular opinion as much as today. Those who have been able to resist must, however, know better what they already know, must learn as much as can be learned and help both themselves and others unlearn. Gramsci was speaking to this need in his own country, in his own time, a time when capital’s hold was much weaker than now. But it was still powerful enough to conquer one of the strongest socialist movements in the world and to put fascism in its place and Gramsci in prison.

Those who work through this book carefully, and any serious person can do so, will know more about the economy than is presently being learned by an economics major, and will also be able to refute the arguments of such majors—and their professors. I hope that many economics teachers will adopt this book for their classes. But it is unique in that an individual or, better, a small group reading responsibly and meeting regularly can move through it well and go on to work with others to the same end, as teachers themselves.

What, specifically, can we learn and unlearn from this book? The first two hundred pages are an introductory critique of conventional economics, both for what it is and for what it lacks: studies of changes and growth, in terms of institutions and history, technology, needs and wants, threatened social capital and natural resources, and much more that is usually given only a passing glance, if that. The next four hundred pages present a substantial critique of the theoretical core of economics—demand and supply and distribution—and offer systematic alternative analyses; they also cover the complex realities of consumption and productive institutions (households, businesses, and governments). Finally, they contain an excellent analysis of the distribution of income and wealth.

Stretton’s treatment of mainstream theory is represented by this appraisal of “models,” the main fix of economists:

The only activities [that mainstream economics] models are people trading their individual endowments, in equal exchanges, for the private market goods they individually want.…[It] is fair to call the simple model a capitalists’ or property-owners’ model.…It chooses to equate passive ownership and active work as similar “endowments,” similarly productive. It accepts the unequal distribution of capital ownership as “given,” it puts no value on the productivity that is lost when households can’t get adequate household capital, or use public capital. It chooses criteria of economic inefficiency which are indifferent to unlimited inequalities. The criteria are also based in favor of what people want as consumers rather than what they want as paid and unpaid producers. It encourages a systematic preference for privately profitable production over other modes. And many of the economists and others who use the model are unconscious of the values which shape it, and believe—wrongly—that it is an objective, value-free representation of economic activity (220-225).

This superb book concludes with another two hundred pages on economic and national strategies designed to confront and meet contemporary needs and possibilities. In this brief review, only the character of Stretton’s policy proposals can be suggested. As a dyed-in-the-wool lefty, I see them as highly valuable in themselves and as decisive steps toward what we have been working for: a safe, sane, and decent society, for one and all, across the globe, in presently rich and poor societies. Less abstractly, that means effectuating policies that move as swiftly as possible toward ample education, healthcare, housing, and opportunity for all. In turn, those policies imply a downward redistribution of income, wealth, and power and substantial changes in the structures of both production and consumption.

Like many who read this review, I believe we need a democratic socialist society. But we have no significant socialist movement now. What we do have is a growing (if not yet unified) movement of protest against what exists and for something much better. All the elements generating that movement are treated in this book, both in analysis and in policy. Working for and achieving such linked reforms could—even must—serve as the prerequisite for the achievement of an effective socialist movement.


Capitalism and Its Economics: A Critical History (London: Pluto Press, 2000).