Book Review: "Capitalism and Its Critics" by John Cassidy

The author has written a sweeping economic history for our time, one that explains how we got into our current mess, and how, if we can prevail against our corrupt politics, we can get back on track.

The best books are the ones in which you get fully ensconced, the ones that create an environment you long to get back to such that you quickly dispense with all the distractions that comprise your days and evenings so you can settle back in with it.

That’s the case with John Cassidy’s latest book, a history of the thinkers, scholars, Marxists, Keynesians, and capitalists themselves, including no less than Adam Smith, who were and are critics of the dominant, powerful, persistent, durable, frustrating, and constantly morphing form of economic organization known as capitalism.

Cassidy, the lead economics writer for the New Yorker, personifies the old and very true adage that if you really understand something, you can explain it to anyone. His previous book, How Markets Fail, was best-in-class (and it was a crowded class) in explaining how the housing bust and financial crisis unfolded back in the 2000s. If you want solid proof of his explanatory chops, read this essay in the New Yorker on the important but often overlooked insights of the financial economist Hyman Minsky, who also does a turn in the new book. You’ll see that it goes down like butter, and trust me, you can’t say that about the original text.

The book is structured around the critics themselves, each of whom get a chapter explaining not just their critiques, but how they came to them with careful attention to their historical context. An early chapter on Adam Smith underscores that there was a lot more to him than laissez-faire, free-hand insights about the power of unleashed market forces.

While Smith has legitimate claim to the title of capitalism’s father, he was far from an uncritical parent. He, and many other of capitalism’s critics—the chapter on the Keynesian economist Joan Robinson is also highly elucidating on this point—were acutely aware of the distortionary impact of monopolies. “The main objects of Smith’s criticism were the great colonial trading houses, particularly the East India Company,” a mercantilist exporter that distorted both prices and the development of the colonies and other trading partners it exploited.

I found it helpful to build a typology of the critics featured throughout, one that puts them in one of two buckets: baseball and zoos. I know a lot of people my age (i.e., old) who love the game of baseball but think, due to rabid free agency, drug use, flashy commercialism, it has devolved over the years into a corrupt version of itself. These people think the foundation is sound and that if the proper guardrails could be enforced, the game would be great again.

I also know people who think zoos are just wrong. They’re cruel prisons for wild animals and they shouldn’t exist.

Most of capitalists critics, like Smith, Keynes, Robinson, up through Piketty, are in the baseball bucket, as are Henry George, Veblen, and (maybe) Thomas Carlyle. Others, like Marx, Engels, Rosa Luxemburg are in the zoo group. There’s also an important third group, highly relevant to today, who believed that baseball may be a fine game, but that powerful forces make it impossible to get it back to its roots. I’ll get back to them at the end of this review.

This tension between necessary reforms of capitalism and the view that it is wrought with contradictions that must eventually lead to its implosion and demise, between reformable baseball and foundationally corrupt zoos, forms the overarching theme of the book, and it is what makes this critical history so timely. Somewhere in here is an explanation for how we got to where we are and how to get out. Cassidy, as a true journalist, doesn’t go there. He presents and explains this tension in highly readable detail, but he leaves its application to the current state of capitalism up to us.

Marx and Engels were, of course, convinced that, though it would take a while, capitalism would eventually collapse under its own weight, as its fundamental exploitation of working proletariats could not be endlessly sustained. “What the bourgeoisie therefore produces, above all, are its own grave diggers. Its fall and the victory of the proletariat are equally inevitable.”

Cassidy dives deeply in these two chapters (Engels, then Marx) into why that has yet to occur. A major reason has to do with the more equitable distribution of growth than team zoo envisioned. One interesting way to understand this is to compare Marxist and Marshallian (classical economics) theories of wages and profits. Marx believed that capitalism’s most basic form of exploitation was paying workers less than they contributed to production, with owners taking the difference. Classical economics argued that in fact, wages are precisely equal to “marginal revenue product,” the value of that contribution.

Neither is correct, but especially in the postwar period in the U.S., the distribution of growth was a lot more equal than it has been since. For decades from the late 1940s to the mid-1970s, the real incomes of the bottom and middle grew faster than the top, and this dynamic was instrumental is staving off the gravedigger scenario. Also in play was an equally important dynamic which Karl Polanyi called the “double movement:” “the process of marketization imposed from above followed by social reforms instigated from below.”

This takes us right to Keynes—and if Cassidy does slip and reveal his cards, it is here where I sense he shares my own view that Keynes stands above the crowd. Firmly in the baseball camp, Keynes, who sat in the front row through a period of massive destabilization and destruction, recognized that only a thoroughly institutionalized “double movement” could save capitalism. At the core of that insight was the realization that contrary to the false assumptions of classical economics, capitalist economies can and do settle into bad equilibria, and in such cases, can only be jolted back to life through government intervention.

I have spent decades working in this very space, guided by the view that if we can employ Keynesian tools to maintain full employment and “social reforms instigated from below,” by which I mean offsetting market failures that a) reach groups of people the market leaves behind (though, for example, access to education, affordable housing and child care), b) address longer-term challenges like climate change that short-sighted markets will fail to adequately meet, and c) enforce guardrails against market, especially financial market, excesses, we can achieve the just economy Keynes envisioned, or at least get moving reliably in that direction.

And yet, here we are, not just far away from that worthy path but moving further from it at alarming speeds. The explanation as to why is also in this book, in a set of chapters on that third group I referenced above, including Paul Sweezy, Michal Kalecki, along with the afore-mentioned Polanyi and Joan Robinson.

Sweezy and Kalecki in particular would have read my paragraph above about the application of Keynesian economics and identified a big missing piece: the accumulation of capital and political power by oligarchs and corrupt politicians who serve them. Quoting Sweezy, Cassidy writes:

The problem with Keynesian policy prescriptions was “their faulty (usually implicit) assumptions about the relationship, or perhaps one should say lack of relationship, between economics and political action. The Keynesians tear the economic system out of its social context and treat it as though it were a machine to be sent to the repair ship there to be overhauled by an engineer state.”

Kalecki was equally attuned to this powerful threat to Keynesian solutions, though his emphasis was more on capitalists’ legitimate worries that Keynesian pursuits of full employment and public investment would crimp their market dominance and thereby, their power and profits. More worker bargaining power meant less capitalistic control.

The extent to which these critics foresaw our current predicament is remarkable and one of the things that makes this book so very compelling right now. Economists like me and my many colleagues with our Keynesian orientation (and like I said, I’d throw Cassidy in there with us) walk around with our heads full of reforms necessary to shave off capitalism’s rough edges, to build the necessary guardrails, to maintain full employment on behalf on working bargaining power and more equitable distribution.

But these critics recognized that democratic capitalism empowers those who would block these reforms in the interest of wealth accumulation, wage suppression, the marketization half of the double movement without the other part (see Medicaid and SNAP cuts in the current Republican budget), and financial deregulation (see the ongoing legitimization of crypto).

The capitalists themselves, along with the politicians they employ to do their bidding, fail to recognize that such greed is what underlies the “gravedigger” scenario. And in his excellent summary chapter, Cassidy acknowledges this crossroad. Historically, capitalism preserves itself in that such periods are followed by reforms of the current excesses. “The system cannot rest,” and if the past is precedent, Trump and his corrupt minions will be sent packing. “This has been true throughout [capitalism’s] history,” writes Cassidy at the end of the book.

But he is too astute an observer of history to stop there. His last sentence asserts that capitalism may well continue to evolve, adapt, and once again stave off Marx’s prediction. Unless this time is different.