The errors of New Right economics

Post-Keynesianism and the Rights of Money

by Gwydion M. Williams


If it’s a free market, what is it free to do?

Real markets exist within a mesh of trade associations, contracts and laws. They are never free in the sense of everyone doing just as they pleased. They may be free in the sense of asserting the Rights of Money at the expense of other human rights.

The assertion of the Rights of Money in the 1970s made life better for those whose main income came from their ownership of lots and lots of money. For those with just a little money – even for prosperous middle-income groups with their own houses and some savings in the bank – the break-up of the Keynesian system was a misfortune.

Prosperous middle-income groups continued to get a decent share of an ever-growing cake. But life for them became much more uncertain and stressful than it needed to be. It isn’t just the poor who have lost out, this much is well known and has not stopped people voting for right-wing policies. Middle income groups have absorbed this and suppose that they are among the winners in the new order.

In a democratic world, it is important to emphasise that middle-income groups have not done any better in terms of income than if Keynesianism had been repaired and continued in the 1970s. Their share of the economy is much the same, and economic growth is a little slower. Middle income groups were also better cared for under Keynesianism.

A life that is continuously uncertain and stressful is hailed as freedom by some people. Just as brawling and even knife-fights or gunfights is viewed as freedom by various other people. I’d far sooner legalise brawling and even knife-fights or gunfights among consenting adults. This is far less de-civilising than to let the whole world be made uncertain by brawls and panics by the owners of money.

Panics such as the mass flight of Western capital from East Asia, which did damage that those economies are only slowly recovering from. Crony Capitalism is blamed, but it was Crony Capitalism in East Asia and Western Europe that won the Cold War for the West. Financial deregulation that allowed the East Asians to be trampled and gored by what George Soros calls a dangerous herd of panicky investors.

Keynesianism limited the fights between the owners of money and prevented them from using their financial strength in ways that might hurt the vulnerable. It was in trouble in the 1970s, but could have been updated and modernised instead of being attacked and torn down in the name of Freedom. Freedom for money, and an assertion of the Rights of Money at the expense of Human Rights.

The assertion of the Rights of Money is hailed as freedom by rich people who did indeed do very well out of it. Including the owners of the ‘free’ media, where most news services run at a loss and are subsidised by advertising and by rich owners. Newspapers and television channels dependant on the goodwill and support of a small strata of rich people are happy to declare that the Rights of Money are Real Freedom. Or failing that, they are at least necessary for general prosperity.


Adam Smith, we are told, showed why Keynesianism with its limits on the Rights of Money couldn’t really work. (Despite having actually worked for a quarter century of unprecedented prosperity, it contradicts the Dogma of Market Infallibility.)

Adam Smith was the first prophet of the Dogma of Market Infallibility, a full century before the Catholic Church did something similar with Papal Infallibility. Of the two doctrines, it is the Dogma of Market Infallibility that is the really dangerous irrationality.

Adam Smith was a believer in the Rights of Money. He had small regard for the Rights of Man, and was a moderate supporter of George III and Lord North against Benjamin Franklin and George Washington. As for Human Rights, rights applying equally to both sexes, this was not even on the agenda in Smith’s day. But a claim for equal rights for all adult male Europeans was seriously argued in Smith’s own time. And he was against it.

Smith was not of course so foolish as to proclaim Rights of Money under its right name. He called it Free Trade, without ever saying what it should be free to do. He simply evaded the massive industrial slavery of the West Indian sugar plantations and the milder slave-run plantations for cotton and tobacco in British North America. He spent much of his life in Glasgow, which thrived as a clearinghouse for slave-grown tobacco. It thrived because of trade restrictions which meant that colonial goods had to pass through Britain before it could be sold onto Europe, authentic free trade might have left Glasgow poor and marginal.

Smith himself was also fond of slave-grown refined white sugar. These aspects of the Wealth of Nations did not suit him and he never dealt with them. Just as he never mentioned the residual serfdom of true-born Scottish colliers and saltiers in his native Kirkcaldy. He knew all about it, mentioned it in passing in the original Edinburgh Lectures on Jurisprudence from which The Wealth of Nations was developed. But when he was addressing a wider audience with little knowledge of Scottish conditions, this residual serfdom became an Unfact. That’s how much respect he had for truth.

The world of Adam Smith was a world of Gentry Capitalism. The landed ruling class shifted their money between land, trade, finance and manufacture as the whim took them. They were very different from landowners elsewhere in the world, who genuinely believed that the traditional order should be maintained. This lot believed that it should be maintained for their benefit and subverted for everyone else.

Gentry Capitalism was a natural development out of late British Mediaevalism. Elsewhere, the land-owning classes mostly took a stand against the new pattern of industrialism. In Britain, the Wars of the Roses involved the mutual extermination of all of the really old families with feudal values. They were replaced by jumped-up gentry much more interested in money and non-feudal privilege.

The English Civil War was at root a conflict between moderate Protestants and extremist Puritan Protestants. Traditionalists lined up with the moderate Protestants, but neither the King nor his main supporters were really traditionalist.   Sir Isaac Newton’s father died fighting for King Charles, and organised science in Britain began with the Royal Society, formed by displaced Royalists. In Adam Smith’s own time, pioneering scientists like his friend James Hutton faced hostility from the heirs of the Puritan rebels when they advanced scientific truths like the extreme age of the Earth on the basis of the complex history writ in the rocks.

“No prospect of an end, no vestige of a beginning” was a bigger challenge to the Bible than anything Galileo had said. More subversive that the later opinions of Tom Paine.

Adam Smith lined up with a gentry that was progressive and scientific. A gentry that was also forcing economic change on a population that was either traditionalist or narrow-mindedly Puritan.

Gentry Capitalism was succeeded in the 1770s by the Georgian Industrialisation. Under George III, the state machine began to assert itself against the Whig lords who had gained dominance in 1688, and state revenues grew even faster than the economy as a whole. The attempt to clean out residual Puritanism and Democracy in the North American colonies went disastrously wrong for George III. But under William Pitt the Younger, a solid alliance was made between the King, Pitt’s parliamentary faction and a majority of politically minded Britons. And the gradual growth of capitalist agriculture and factory-based mass production fitted in nicely. Pitt also regarded himself as a pupil of Adam Smith.

The Georgian Industrialisation intensified during the Napoleonic Wars. British Republicans and radicals were a small minority, most of the population followed the gentry in rejecting the secular, republican and meritocratic values of France. But since protests by working men against the Rights of Money could be condemned as Jacobinism – were indeed often linked to radicalism – industrialists found themselves able to squeeze out artisans and extend the working day to twelve hours or more.

Britain did also have a rudimentary welfare state in the shape of the Poor Law, and a basic idea that the entire population had to be looked after. And Pitt’s tax-and-spend policies, though made to save the existing order from radical politics, did also boost the economy using the methods that would later be known as Keynesian.

Samuel Taylor Coleridge, who was a philosopher as well as a poet, did recognise the merit of state spending. (See my article Coleridge and the end of Christian economics, available at the Heseriarch web site.)

Regrettably, Britain did not develop as Coleridge had hoped. Puritanism made a come-back with the 19th century Liberal Party. Parnell as leader of the Irish Party had no hesitation in identifying the later Gladstonian Liberals as heirs of Cromwell, and this they substantially were.

I would tentatively identify the stages in Britain as being:

  • Free Trade Imperialism (from the 1830s).
  • Popular-Imperial Capitalism (from the 1870s).
  • Incoherent Imperialism (from 1914).
  • Keynesianism (from the 1940s).
  • Post-Keynesianism (from the 1970s).

There is no perfect tie-in between economy and society. Industrialisation had been proceeding fast from the 1760s. A victory against the American Rebellion – as might have happened had Benedict Arnold been more successful in his defection from it – would have meant much stronger royal power in Britain, and also probably no French Revolution. Britain would also have developed very differently had the French won out in North America and / or in India.

The schema I give is also relevant only for Britain, though the later stages were more part of a synchronous world process.

This is not to say that it developed along ‘capitalist’ lines either. Free Trade was pushed when it seemed likely to prove advantageous for Britain. But the Industrial Revolution had also shown that free competition led to the impoverishment of the working class and to children being worked to death. Basic factory regulations were required, as well as basic rules to stop impure or even poisonous foods being sold. And it was discovered that in a big city, it is a necessity to have paved street, lighting, pure water and hygienically piped sewage.

Adam Smith in The Wealth of Nations was not describing Gentry Capitalism as it actually was. Rather he was abstracting and inventing something that could best be called Ideological Capitalism. An imaginary system which he devised as an abstraction and purification of the commerce of his own day. It’s a totally mad world which has an unlimited number of inhabitants, none of them human. In the world of Ideological Capitalism, abstract entities known as Agents instantly known their own best interests and act accordingly.

Adam Smith’s Ideological Capitalism is not even a good description of real markets, where no trader knows very much, and those who are slightly less ignorant than the rest can command fancy salaries and accumulate great fortunes.

Ideological Capitalism was later dressed up in formulae – a trend that Marx began, I think. But whereas Marx was honestly trying to get to the root of the matter, defenders of the status quo used formulas to hide what was actually going on.

Free Trade mainly meant that Britain should be free to organise the world as it saw fit, without having any obligations to most of it. Britain could have continued to be the Workshop of the World, for as long as other countries were willing to accept Free Trade dogma and refuse to protect their own fledgling industries as Britain had protected them during the industrial revolution.

Britain’s industrial advantage was created by the Georgians and squandered by the Victorians. The Victorian British built a very odd sort of Empire, and Empire that expanded into foreign lands without trying to either conquer or incorporate its neighbours. Which meant that Germany, France and Russia remained threats both to Britain and to each other. Some sort of Great War was bound to happen.

The Incoherent Imperialism that followed from the 1914 war was very nearly overthrown by Leninism, and only when it transformed into Keynesianism did it start to make back ground. Likewise there was a possibility of building on Keynesianism in the 1970s, with expanded welfare and workers control. It was only because too many on the left fought old battles and paid no attention to growing working-class individualism that an incoherent

Post-Keynesianism is a system of global incoherence. The 1960s broke down the existing rules, but the 1970s saw nothing very definite replace it, as various coherent ideas cancelled each other out.

Thatcher genuinely thought she was restoring old-fashioned values. Ronald Reagan probably knew better. A minor Hollywood star whose second wife was the daughter of a divorced woman and ignored her own father in favour of her stepfather was not likely to be very serious about traditional values. You were popular if you talked about it and did nothing more than talk. There was a massive decline of traditional morality under Reagan and Thatcher. The alternative values of the 1960s are now the norm.

At a social level, religion was negligible and only money mattered. The Running Dogs of the Religious Right got the occasional bone but nothing of substance. Thatcherism was only a stage in the process, a continuation of the 1960s subversion. She gave it a misleading appearance of traditional values. Thatcher herself was undoubtedly one of those misled. With Clinton, Blair etc. the balance has shifted on and much less pretence of traditional values is needed. Instead you have a system which caters to everyone’s bad habits.

New Labour is more in tune with Post-Keynesianism that the Tories ever were – or look likely to be. Voters like leaders who are personally devout, but are not so foolish as to bring God into serious matters.

The Keynesian model was well-run office or factory. Post-Keynesianism is incoherent, a global night-club. It used to be that middle income groups could be sure of a job unless they did something outrageously bad, but no more. The loss is serious. They now get ‘downsized’, with the main benefit going to shareholders.

Under Keynesianism, a job was for life, and so was a marriage. Under Post-Keynesianism, even life is not for life, you are supposed to keep reinventing yourself. Of course you reinvent yourself as almost exactly the same person, but are glad to show that you have been radical and on-message.

As for what comes after Post-Keynesianism – that is very much an open question.


First published in Labour & Trade Union Review, 1999

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