To move beyond boom and bust, we need a new theory of capitalism

Paul Mason in The Guardian:

Here, the parallels with events in physics are obvious. After Einstein’s big breakthrough, we were left with two competing – and mutually incompatible – accounts of the laws of physics. Einstein himself was dissatisfied with this, pursuing from the 1920s a “theory of everything”. It is a laudable aim in economics too. And this is where we come to the turning point. The defenders of orthodox economics and the Minsky rebels are, essentially, asking the same question: “What does capitalism normally look like?” The one answers “stable”; the other “unstable”. But it’s the wrong question. The right question is: Where are we in the long arc of capitalist development? Nearer the beginning, the middle or the end? But that question goes to the heart of darkness.

For the mainstream, their convictions about equilibrium and abstract models were always founded on the belief that capitalism is an eternal system: the social arrangement most completely reflecting human nature. Minsky’s followers, as with all followers of JM Keynes, assume that a better understanding of financial mania can stabilise an inherently unstable system. But even physicists, who study a universe that has lasted 13bn years, are prepared to countenance – indeed, are obsessed with modelling – its death.

So the pursuit of theory is obligatory in economics. The holy grail is not a new orthodoxy, cobbled together from Minsky and the remnants of mainstream thought so that bankers can construct trading models to iron out problems created by the way our brains work. The aim should be something bigger to model capitalism’s current crisis within an understanding of its destiny.

For me, the most fundamental question in economics still concerns the 2008 crisis. Was this event the last in a series of shocks needed to allow a third technological revolution to take off? Or was it evidence that capitalism’s tendency to adapt and reshape in response to technology has stalled, or is even finished? That is the shadow we have to jump over in economics. Amid a mania for “new economic thinking”, it is what we need to think hardest about.