Lomfeld et al reshaping markets; economic governance, the global financial crisis and liberal utopia (2016)

Economic Governance, the Global Financial Crisis and Liberal UtopiaEdited by Bertram Lomfeld Professor of Private Law and Legal Philosophy Free University of Berlin Alessandro Somma Prof

Set against the origins and consequences of the globalfinancial crisis, thistimely book offers an enriching and revealing narrative of the role that thestate plays in regulating markets Focusing on core areas of private law such

as corporate, labour and banking law, the contributors offer a conceptualframework in which to examine the central tenets of the role of private law

in today’s global economy In the current climate of ever-increasing economicinequality and austerity measures, the authors highlight the urgent need for

a comprehensive analysis of the continuing tension between ideas of marketliberalism and theories of society With a focus on both the domestic andtransnational dimensions of market governance, the authors offer a crucialinsight into the co-existence and interaction between state and market-basedeconomic governance

b e r t r a m l o m f e l dis Professor of Private Law and Legal Philosophy at FreeUniversity of Berlin

a l e s s a n d r o s o m m ais Professor of Comparative Law at the University ofFerrara, Italy

p e e r z u m b a n s e n is the inaugural Professor of Transnational Law atThe Dickson Poon School of Law, King’s College, London, where he directsthe Transnational Law Institute

Economic Governance, the Global Financial Crisis and Liberal Utopia

Edited by

Bertram Lomfeld

Professor of Private Law and Legal Philosophy

Free University of Berlin

Alessandro Somma

Professor of Comparative Law

University of Ferrara, Italy

Peer Zumbansen

Professor of Transnational Law

King ’s College, London

University Printing House, Cambridge CB2 8BS, United Kingdom

Cambridge University Press is part of the University of Cambridge.

It furthers the University ’s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence.

www.cambridge.org

Information on this title: www.cambridge.org/9781107095908

© Cambridge University Press 2016

This publication is in copyright Subject to statutory exception

and to the provisions of relevant collective licensing agreements,

no reproduction of any part may take place without the written

permission of Cambridge University Press.

List offigures pagexi

Introduction: reshaping markets and the question of agency 1

p e e r z u m b a n s e n

Part I Crisis and normality in transnational market regulation 7

1 The central problems of Marx’s economics and the nature of

d a v i d c a m p b e l l

1.4 Early British left-wing criticism of the labour theory of value 16

1.5 The critique of capitalism in light of the labour theory 23

2 Contract law, securitization and the pre-crisis transformation

2.3.2 The rise of market-based banking and its consequences 53

v

2.3.3 Market-based banking and the problem of the “coordinated market

3 ‘Inside’ and ‘outside’ the firm: corporate law and contract

p e e r z u m ba n s e n

3.3 The lawyer ’s mindset and the new twist in law and economics 66 3.4 The promises (and pitfalls) of contract governance 70 3.5 Coming full circle? The corporation and contract governance 72 3.5.1 The conundrum of agency in contemporary contract and corporate

3.5.2 Beyond public versus private: the promise of relational contract

i a n n i s m i c h o s

4.1 Prologue: the biggest sovereign insolvency in history 97

4.2.2 An event and the quest for a single cause 101

4.3.1 The years 1990 –2005: availability of cheap labour and profit

4.3.2 Greece in the Eurozone: living with a strong currency 105 4.3.3 Governance issues within Greece and the Eurozone 107 4.3.4 The ‘inefficient’ markets: eurozone or euro country? 110

5 The biopolitics of debt-economy: market order, ascetic and

a l e s s a n d r o s o m m a

5.1 Accumulation regimes, hedonism and asceticism 115

5.3 The morality of debt relations as power relations 119 5.4 Sovereign debt restructuring and morality: citizens ’ asceticism 121 5.5 The German experience: Hartz-reforms and invisible poverty 124

5.7 From consumers ’ hedonism to communitarianism 128

6 Credit contracts and the political economy of debt 133

m o r i t z r e n n e r a n d a n d r e a s l e i d i n g e r

6.2 Three stages of a decline? A historical political economy of debt 134

6.2.2 The Great Transformation Part I: credit contracts and the regulatory

6.2.3 The Great Transformation Part II: trading risks 137 6.2.3.1 Making risk ‘disappear’: the example of CDS trading 138 6.2.3.2 Making the law more risk-sensitive: the example of

6.2.3.3 A shift from normative to cognitive expectation structures? 141 6.3 Reembedding debt? The constitution of a political economy beyond the state 142

6.3.2 ISDA’s part in the cognitivation of financial markets 143 6.3.3 The evolution of ISDA’s position in the derivatives market 144 6.3.3.1 Internal centralisation – The 2009 Supplement to the

Part III Reformingfinance: systemic risk and accountability 159

7 Why manager liability fails at controlling systemic risk 161

a n d r e a s e n g e r t

7.2 Manager liability: not strict but fault-based 162 7.2.1 Strict liability is inconsistent with managers ’ role as agents 163 7.2.2 Incentive distortions from strict liability 164

7.3.1 Objective: limiting the probability of bank insolvency 167

7.4 The consequences of uncertain care standards 176 7.4.1 The case for restricting manager liability 177

8 How special are they? Targeting systemic risk by regulating

8.2.2.2 Risk-insensitive funding as the core problem 193

8.3 Legislators ’ and supervisors’ ‘formalist’ implementation of the policy

8.3.1 Securitisation and off-balance sheet conduits 197

8.4 Enhancing prudential regulation ’s assertiveness in a normative approach 199 8.4.1 The idea of an internal solution without permanent law reform 199 8.4.2 Actual and alleged limits of a normative approach 200

9.5 Culture, organizational psychology and regulation 219 9.5.1 Project finance as a model of public/private co-regulation 221 9.5.2 Dutch Central Bank psychological interventions 222

10 Regulatingfinancial markets: what we might learn from

l a r r y ca t a´ backer

10.2 The operation of the Norwegian Sovereign Wealth Fund: private actor,

10.2.2 Responsible investing and active ownership 233 10.3 Juridi fication of investment: the emerging jurisprudence of the ethics

10.3.2 Operationalizing the Ethics Guidelines – the structure and

functions of the NSWF Council on Ethics 238viii Contents

10.4 Cooperative and inter-systemic governance: its strength and fragility 243

11 Sustainable contracting: how standard terms could govern

b e rt r a m l o m f e ld

11.1 Two problems: limits to growth and limits to law 257 11.2 One answer: sustainable contracts by standard terms 260 11.3 Why global sustainability terms could help 262

11.4.4 Procedural (political sustainability) standards 272 11.5 How sustainable contracting could (really) work 273 11.5.1 Myth production by classi fication, labelling and certification 274 11.5.2 Structural couplings to domestic and international law 274 11.5.3 Deliberative hubs for local and global stakeholders 275 11.5.4 Economic incentives through graded interest rates and prices 276 11.5.5 Constitutionalising sustainability by judicial control 276 11.6 The vision: sustainable private self-governance 277

s o n j a h a b e rl

12.1 Old and new questions in modern anti-discrimination law 283 12.2 Equal treatment in the construction of a common market 286 12.3 Towards a new approach in EU anti-discrimination law? 289 12.4 The limits and shortcomings of anti-discrimination law as an instrument of

13 European or American style? Cultures of contract regulation 298

d a n i e l a c a ru s o

13.2.1 The neo-classical critique of the CESL 302 13.2.2 The CESL and behavioural law and economics 303 13.3 The burden of proof: origins and questions 307 13.4 Private law, redistribution and behavioural inquiry 309

Part V Conceptual Utopia: the market after the market 317

m a r i a r o s a r i a f er r a r e s e

14.2 The “truth” of the market and some of its implications 320 14.3 How do markets tell the truth? Between competition and ef ficiency 322

14.5 Which “free market” after the crisis? Truths and untruths 328

14.7 Global markets, governance and new institutional trends 335

b e r t r a m lo m f e l d

8.1 Alternative Credit Intermediation page195

xi

l a r r y c a t a´ b a c k e ris W Richard and Mary Eshelman Faculty Scholar andProfessor of Law & International Affairs at the Pennsylvania StateUniversity He is the founder and director of the Coalition for Peace &Ethics, and has visited at the University of California, Hastings, College ofthe Law and Tulane Law School His research focuses on governance-relatedissues of globalization and the constitutional theories of public and privategovernance, with a focus on institutional frameworks where public andprivate law systems converge He runs the essay site ‘Law at the End ofthe Day’ underhttp://lcbackerblog.blogspot.com

d a v i d c a m p b e l lis Professor of International Business Law in the School ofLaw, University of Leeds, UK, a Fellow of the Chartered Institute ofArbitrators and has taught at a number of British universities and inAustralia, Hong Kong, New Zealand, Spain and the USA He has written

on a wide range of legal and social scientific issues in leading UK,Commonwealth and US journals His main current research interests are inremedies for non-performance of contractual obligations and in regulatorytheory, and particularly in the development of a‘non-Chicagoan’ law andeconomics of these subjects

d a n i e l a c a r u s o is Professor for Contract and European Union law atBoston University School of Law and has taught at Kilachand HonorsCollege, Harvard Law School, Oxford, London School of Economics, Pisaand Amsterdam In her EU Law publications, she has focused on private law

as a particularly effective tool for analysing the political transformation ofsupranational institutions She has also written on equality and federalism,

on the implications of European integration for state-based social legislation,and on regional policies In matters of contract law, her articles have dealtwith the distributive impact of pseudo-contractual mechanisms in thedelivery of special education services, and with the links between contractdoctrines and welfare reform in domestic and comparative perspectives Herpro bono work concerns special education law and residential mental healthunits

xii

j o h n m c o n l e y is William Rand Kenan Jr Professor of Law at theUniversity of North Carolina School of Law, Chapel Hill, NC, USA.

At Duke Law School, he was the editor in chief of the Duke Law Journal.Professor Conley’s research focuses on intellectual property law, corporatelaw and banking law as part of a comprehensive engagement with a socio-legal approach to legal regulation

a n d r e a s e n g e r t is Professor of Private Law, German and EuropeanBusiness Law and Business Tax Law at the University of Mannheim Hisresearch interests are in legal theory, general private law, corporation andsecurities law as well as business taxation, all with a special emphasis oneconomic and empirical perspectives He has written extensively oncorporate finance law, European corporation law, investment fundregulation, and law and social norms, among other topics

m a r i a r o s a r i a f e r r a r e s eis Professor of Sociology of Law at the CagliariUniversity, currently serves at the Scuola Superiore della PubblicaAmministrazione (Rome), where she teaches Sociology of Law andEconomic Life, and was visiting at l’Ecole des Hautes Etudes en SciencesSociales (Paris), George Washington University and Harvard Law School.She has published more than 100 articles in Italian and foreign journals andbooks and has translated two American books In the lastfifteen years, herresearch has focused on transformations in the legal landscape, due to theprocess of globalization

s o n j a h a b e r l is Assistant Professor of European Private Law at theUniversity of Ferrara and has lectured in Padua She is a member of theeditorial staff of the Comparative Law Review and a member of the ItalianAssociation of Comparative Law Her research focuses on different issues ofcomparative law and European private law, particularly contract law andanti-discrimination Law

a n d r e a s l e i d i n g e r studied law at Cologne University and politics atMoscow Higher School of Economics before graduating from HumboldtUniversity Berlin He is currently a research assistant at Bremen Universityand a legal clerk at the Berlin Court of Appeals

b e r t r a m l o m f e l d is Professor of Private Law, Legal Philosophy, LegalSociology and Law & Economics at Free University of Berlin He haslectured at Frankfurt, Rostock, LUISS University Rome and was a fellow

at UNIDROIT He has worked as legal advisor for the German Ministry forEconomic Cooperation and Development and for the Green Party at theGerman Federal Parliament (Bundestag) He co-founded and coordinatesthe transnational Private-Law-Theory (PLT) network and is editor in chief of

the journal polar for political philosophy and culture His publications rangefrom political philosophy over international law to private law.

i a n n i s m i c h o sis an attorney at law based in Athens, Greece He specializes

in the various forms of cooperation between the public and the private sector(PPPs, concession agreements, services agreements etc.), including theirfinancial aspects He has been a member of the board of directors of theHellenic Postbank and is currently member of the board of directors of the(Hellenic) Public Gas Corporation (DEPA) He studied law at AthensUniversity and made his post-graduate studies in France (University Paris-

2, Montpellier-1), where he worked with Michel Foucault (College deFrance 1982–1984)

m o r i t z r e n n e ris Lichtenberg Professor for Transnational Commercial Lawand Commercial Law Theory at the University of Bremen His Ph.D thesis

on mandatory transnational law analyses the role of mandatory norms ininternational commercial arbitration Recent and forthcoming publicationsrange from transnational law, over national commercial and economic law,

to legal theory

a l e s s a n d r o s o m m a is Professor of Comparative Law and Pro-rector forInternational Affairs at the University of Ferrara, Italy He is member of theInternational Academy of Comparative law and of the board of the ItalianAssociation of Comparative Law His main researchfields include the theoryand history of comparative law, Nazi and fascist theory of law, Europeanprivate law, globalization and theory of the state He has publishedextensively on European and Italian private law, comparative law, legalhistory and political economy

t o b i a s t r o¨ g e r is Professor of Private Law, Trade and Business Law andJurisprudence at Frankfurt University and has lectured at TübingenUniversity and the University of Passau He has published nationally andinternationally in law reviews and economic journals on various topics incorporate and contract law as well as securities regulation His researchemploys interdisciplinary methods and is particularly hospitable toeconomic approaches to law and its empirical analysis

j a m e s ‘ j a y ’ v a r e l l a s i i i is a Ph.D student in political science at theUniversity of California, Berkeley, where his research is funded by theNational Science Foundation Before beginning his doctoral studies, heclerked for a federal judge and practiced as a commercial litigator inNew York and San Francisco

c y n t h i a a w i l l i a m s holds the Osler Chair in Business Law at OsgoodeHall Law School in Toronto Before coming to Osgoode, she was a professorxiv List of contributors

of law at the University of Illinois College of Law, after practicing law inNew York She writes in the areas of securities law, corporate law, corporateresponsibility, comparative corporate governance and regulatory theory,most often in interdisciplinary collaborations She also engages in policywork through her board membership in the Network for SustainableFinancial Markets, a think tank of academics and financial marketparticipants; and the Climate Bonds Initiative, an NGO established tocreate a new asset class, Climate Bonds, in order tofinance the transition

to a low-carbon economy

p e e r z u m b a n s e n is inaugural Professor of Transnational Law at theDickson Poon School of Law, King’s College, London, where he directsthe Transnational Law Institute Before that, Professor Zumbansen heldthe Canada Research Chair in Transnational Economic Governance andLegal Theory at Osgoode Hall Law School (Toronto) In Toronto he wasthe founding director of the Critical Research Laboratory in Law & Society(www.criticalresearchlab.org) and served as associate dean (Research,Graduate Studies and Institutional Relations) He is the editor in chief ofTransnational Legal Theory, was the founding co-editor of the German LawJournal and the founding editor in chief of the CLPE Comparative Research

in Law & Political Economy Research Paper Series with SSRN He haspublished on transnational law, private law theory, contract and corporatelaw and legal theory

and the question of agency

Peer Zumbansen

dominant background story for the chapters included in this book Then again,the GFC is many things at the same time It has been seen as an instantiation of

‘regulatory’ as much as one of ‘market failure’ It is an event that occurs within

a complex set of developments that we need to study in historical, ideologicaland political context if we are to draw any lessons from it at all (Mirowski

2013) Such lessons will come in the form of interpretations and attempts tounderstand regulatory histories as well as discursive framings, which arethemselves embedded within and products of the larger context of their signsand times As such, even if we work on different parts of the story, we like many

intellectual origins of neoliberalism back through history (Mirowski &

events, drawing out the commonalities as well as the distinct differencesbetween them (Cassidy2009; Reinhart & Rogoff2009) is part of any effort

to understand trajectories, landmark decisions and turning points, roads takenand not taken

A remarkable feature of analyzing the GFC is the plurality of its many localorigins As political economists have long insisted on national idiosyncrasies,path dependencies and historically evolving regulatory patterns of marketgovernance (Hall & Soskice2001; Shonfield1965) and as sociologists haveemphasized the urgency to lay bare the– different – national facilitations of

studies of how global capitalism has originated in localized regulatory contexts(e.g., Krippner2011; Streeck2014) The recent Greek sovereign debt disaster

current struggle over the consequences of‘austerity’ (Blyth2013; Schäfer &Streeck2013) Yet, at the same time, predictions over what is likely to happennext have become as difficult as prescriptions as to what ought to be done

1

This constellation offers less guidance or direction, either conceptually orpolitically, than an urgent call for what is without doubt a long-term project ofanalysis and critique The jury is literally still out The chapters in this volumeoriginated in a series of conversations that began in late 2012 with cooperationbetween the Comparative Research in Law & Political Economy (CLPE)Network at Osgoode Hall Law School (Toronto), the mostly European-basedPrivate Law Theory (PLT) Network and the Faculty of Law at the University ofFerrara in Italy The contributors are legal scholars in corporate, banking,commercial and contract law, and in comparative law as well as comparativepolitical economy, legal sociology and anthropology The initiation and con-tinuation of a thought exchange among scholars from these disciplines andsubfields seemed to the organizers of the original event both obvious andnecessary, and we are today even more convinced of its value.

The intellectual collaboration that gave birth to this book aims to lize the particulars of afield’s or a debate’s developments: in other words, toplace one’s own topic of analysis, as well as the larger area of research of which

contextua-it is part, in the environment of a diverse, scholarly and practical polcontextua-iticaldebate Such a‘contextual’ approach appears to us to have been more commonand widespread in the past than wefind today Just looking at current doctoraldissertations in law, onefinds numerous examples of detailed studies that focuseither on a novel act of legislation, on a certain angle of interpretation allegedlydetermining a line of cases from a particular court or on specific arguments thatare made (for the nth time) within already specialized and increasingly abstractdebates Legal academia seemingly occurs in ever more world-removed spaces

of rhetorical dispute On the other hand, institutional managers at the top of lawschools and bar examination boards underline an allegedly market-imposed,and thus undeniable, need, above all, to prepare future graduates for‘practice’.That seems to imply a training of future lawyers in skills as well as in technical,even managerial and mediatory competences (Arthurs 2013), ignoring a strongcentury-old tradition of critical legal thought for which the connection betweenclassroom instruction and real-world lawyering is not one of just opening thewindow to see what’s out there (Holmes1897; Llewellyn1935; Zumbansen

2015) Times in legal academia do not seem to be the best for urgently needed,comprehensive, comparative and critical analysis

All of our chapters are written in an inclusive, contextual spirit of criticallegal thought They offer perspectives on alternative ways of thinking aboutregulatory change in the aftermath of the GFC from a range of disciplinesincluding law, political economy and anthropology While the authors assumequite differing positions in addressing the questions around the means anddirections of regulatory‘responses’, one common thread running through allchapters is a critical interest in the historically evolving and embeddeddynamics of market governance All contributors to the present volume are

thus in agreement as regards the need to widen one’s own and one’s discipline’sand subfield’s conceptual and analytical perspective in order to allow for

a meaningful reflection on the challenges that arise for the way we ‘do things’.One might have‘expected to find that the GFC had resulted in major changes inpolicy thinking and political strategy’ (Grant & Wilson2012, 6) But wefindourselves in a current, troublingly elusive constellation of seemingly perennialcontinuation,‘non-death’ (Crouch2011), déjà-vu and the absence of tangiblechange and transformation In contrast, this book is an attempt to identifyleverage points to intervene in the market structure itself

Our counter-narratives focus on‘the market’ as the primary site of criticalinvestigation The tradition of such a research angle is as long as its resultsappear frustratingly open-ended and inconclusive But, similarly, perhaps, tothe way in which we are obviously asked to overcome any remnant irritationwith the lack of a clear definition of ‘globalization’, we continue to be prompted

to take‘markets’ seriously The trajectories of such serious engagement areprominent and promising– but only if, in fact, we allow them to be and if wejoin in the investigations already underway in an active and critical manner(see, e.g., Frerichs2013; Kotiswaran2013) Our book can be seen against thisbackground, as its authors intervene in important, sensitive regulatory areasand policy discourses, ranging from debt and credit regulation (Michos,Somma, Renner & Leidinger), corporate liability and banking regulation(Engert, Tröger, Conley & Williams, Catá Backer), contractualization of cor-porate regulation and banking (Zumbansen, Varellas), contract governanceitself (Lomfeld, Haberl, Caruso) to national and transnational economic gov-ernance policy making and strategic choices (Campbell, Ferrarese)

The critical conversation about economic governance highlighted in ourbook is ongoing It overlaps and interacts with important investigations inrelated areas such as investment arbitration (Sornarajah 2015; Van Harten

2007), trade and development (Perry-Kessaris2011) or labour law (Arthurs

2012; Standing2011; Supiot1994) With that in mind, the aim of our book isnot to map current and emerging critical discourses in the ambiguous aftermath

of the GFC Rather, we intend to stake out certain sites of engagement that weunderstand, above all, as opportunities for a historically informed as well ascomparatively and transnationally oriented analysis of the role of law andlawyers, of the state and its permutated agencies with regard to setting theground rules of economic governance as well as of the interaction betweendifferent social and economic sciences in producing a clearer picture of theinstitutional and normative stakes of the present constellation We offer onlyminuscule observations of what is, no doubt deserving of a much more com-prehensive and long-term analysis We present our current research and pro-posals, however, to critical response and comment in the belief that suchengagement never occurs in a vacuum

Still, after the Enron collapse and the shut-down of Lehman Brothers

‘the market is once again the primary institution shaping history from East

to West, and it is assumed that market freedom can be reconciled withindividual choice and political pluralism This tension between marketliberalism and a revolutionized society is always problematic and, in theend, unmanageable The deeper reality of market-driven change is that thecontinuing drive for maximizing accumulation, whether for the few or inthe name of national development, leads step by step to a crippling ofsocial dependency for the many Liberal society has no way to redress thefundamental inequality in the transfer of power and wealth that resultswhen private property is made sovereign (Drache & Gertler 1991, preface,xv) What emerges at the present time is, however, a growing awareness ofthe importance of taking stock and of revisiting earlier attempts to pushsocio-legal and historical investigations into the operation of law andregulatory governance It might be a trite observation to state that thebackground, now, seems as important as the foreground But, consideringthe intricate layers of contemporary market governance, such critical revi-siting of conceptual approaches in a comparative-transnational contextmight hold the promise of more adequate insights into the fast-evolvingpatterns of public and private authority and agency and the correlationbetween‘hard’ and ‘soft’ modes of norm-production and dissemination

At the end of the day, the political stakes of global market regulation are toohigh to believe in the merits of‘muddling through’ in the vain hope that it allmight just go well We thus find encouragement in earlier ‘bigger picture’sketches which take issue with the problematic isolation of law– we might addcurrent pre-occupations with ‘social norms’ (Posner 2000) and politics(Horwitz 1992, 270) – or which critique the seemingly inevitable rise of

a new paradigm of market sovereignty.‘For us, living in the immediate stream of these intellectual events, in the ragged turbulence of argument andconviction they left behind, the question historians have asked for other, moredistant times and places takes on a closer importance: how it was that

slip-a vocslip-abulslip-ary of socislip-al thought unexpectedly becslip-ame outmoded slip-and pslip-assé,and another way of thinking, for an era, made claim to its place’ (Rodgers

2011, 14) In this spirit we understand our research and practical proposalscollected in this book as tools for‘reshaping markets’

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Arthurs HW 2014.‘The Future of Legal Education Three Visions and a Prediction’,Alberta Law Review 51, available at:http://www.albertalawreview.com/index.php/alr/article/view/374.

Blyth M 2013 Austerity The History of a Dangerous Idea London & New York:Oxford University Press

Cassidy J 2009 How Markets Fail The Logic of Economic Calamities London:Penguin

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of Comparative Advantage Oxford: Oxford University Press

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Kotiswaran P 2013.‘Do Feminists Need an Economic Sociology of Law?’, Journal ofLaw and Society 40: 115–136

Krippner G 2011 Capitalizing on Crisis The Political Origins of the Rise of Finance.Cambridge, MA & London, UK: Harvard University Press

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of Law and Development’, International Journal of Law in Context 7: 401–421.Posner E 2000 Law and Social Norms Cambridge, MA: Harvard University Press.Reinhart CM & Rogoff KS 2009 This Time Is Different Eight Centuries of EconomicFolly Princeton, NJ: Princeton University Press

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Crisis and normality in transnational market regulation

and the nature of market regulation

David Campbell*

1.4 Early British left-wing criticism of the labour theory of value 161.5 The critique of capitalism in light of the labour theory 23

It is a matter of grave concern that the explanation of the 2007–8 financialmarkets crash which continues to exert the largest political influence upon theattempts being made to reform thefinancial system is based on the concept ofderegulation The crash was a disaster the groundwork for which was laid by thehighly aggressive and utterly incompetent government restructuring of thefinancial sector called in the UK the ‘Big Bang’ It took place whilst that sectorwas under the supervision of multiple regulatory agencies, against a background

of legal and economic policies which gave every inducement to reckless (andmuch inducement to fraudulent) trade It is by no means to exonerate privateactors from their responsibility for the disaster to say that to regard the appallinggovernment failure as an episode of deregulation is a major obstacle to theexplanation of the crash and the formulation of an adequate policy for relief ofthe ensuing depression I have argued this elsewhere on numerous occasions(most recently in criticism of Richard Posner’s version of the concept of dereg-ulation (Campbell2010a;2012)), and do not propose to do so again

Despite the bleak account I have just given of its influence on policyformulation, I do not think sophisticated regulatory theoristsfind the concept

of deregulation plausible (though, of course, one has to guard against making

* This paper was read to a conference on ‘A Behavioural Approach to Corporate and Financial Law ’ held at The School of Law, University of Leeds, in July 2014.

9

what seems to be an accurate statement by means of mere tautology) In thischapter I wish to address a problem which I think besets such sophisticatedtheorists, and so those who continue to find great value in the concept ofderegulation, who cannot even encounter, much less solve, this problem,must part company with me The sophisticated theorists I have in mind regardderegulation, and the idea of an in some way wholly unregulated free marketthat lies behind it, as the illusions at the root of the shortcomings of theneoclassical economics of market allocation I believe these sophisticatedtheorists are right in this But this dismissal of deregulation and the free marketvery often is taken to imply that the defining welfare claim of neoclassicaleconomics– that market allocation is the best form of general economy – iswrong By analysis of the theoretical implications of some divergent concepts

of regulation, I hope to show that this implication by no means follows fromdismissal of the concepts of deregulation and the free market And this is aswell, for I believe that market allocation, were its conditions of existence madeactual, is the best form of general economy

In my opinion, the only truly non-market concept of economic action thatdemands our continued attention is that of Karl Marx By discussion of thecentral problems of Marx’s economics, I hope to support the claim that themarket economy is the best form of general economy One of the results of thiswill, paradoxically enough, be to restate the kernel of sense in the concept ofderegulation, which evidently makes it so attractive to the theoretically vulgar.The claim that market allocation is the best form of general economy is right, butonly if the market is put on a sound regulatory foundation; precisely what isignored in the concept of deregulation But such regulation must be regulation ofwhat must be regarded as, in a sense which will emerge, spontaneous economicaction if the regulatory effort may possibly maximise freedom of such action.1.2 The meaning of‘regulation’

It now seems clear that regulation is a concept of sufficient significance that

it must be regarded as, in Gallie’s (1956) famous term, ‘essentially tested’ What we try to denote by regulation is so important that it isinevitable that divergent views, ultimately reflecting different fundamentalpolitical values, will always be taken of it Bearing this in mind, twooverall concepts of regulation of application to industrialised economiesmay be distinguished First, there is a very general concept of‘economic’regulation as ‘the establishment of the legal framework within which[legitimate] economic activity is carried out’ (Coase1977: 5) This conceptembraces, but should be distinguished from, the concept, theoreticallymuch more restricted in scope, of ‘social’ regulation as the patterning ofeconomic activity by state intervention The distinction between the

con-10 David Campbell

concepts of economic and social regulation rests on the belief that the idealtypical market form of industrial economy cannot be socially regulated.The neoclassical statement of the claim to legitimacy of the market econ-omy in the‘first theorem of welfare economics’ is that, if the conditions for

a generally competitive economy are established, an equilibrium ing a perfectly efficient, or Pareto optimal, allocation of goods must auto-matically be established by a succession of voluntary, mutually beneficialexchanges which identify equilibrium by stopping when all opportunitiesfor such exchanges are exhausted Any state intervention, which analyti-cally involves coercion, must prevent the establishment of a Pareto optimalequilibrium The beautiful circularity of the first theorem lies in its beingdriven by voluntary exchange and working only because it is so driven

constitut-In social regulation, the outcomes of a market activity are assessed from

a viewpoint which expresses the politically determined public interest, and, ifthe assessment is to some degree negative, regulation intentionally designed toalter those outcomes may be advocated Market outcomes may be altered by

a coercive transfer of resources, say by taxing undesirable outcomes or ing bounties to desired ones, or replaced by an alternative form of allocativemechanism, say by taking the activity into public ownership or placing it within

provid-a public provid-administrprovid-ative frprovid-amework which closely pprovid-atterns its outcomes.Criticism of the operation and outcomes of a market believed to be‘generallybeneficent’, which was put on its modern, welfare economic footing by A.C.Pigou (2002[1952]: 128), has led to the adoption of theoretically‘piecemeal’but now extremely extensive social regulation of the market economies Whenbelief in the general beneficence of the market has been wholly abandoned, theattempt has been made to construct communist economies which completelyeliminate the market in order to establish an economy which is entirely sociallyregulated, or, better put, entirely planned ab initio

Behind the advocacy of deregulation lies, not only the belief that a marketshould not be subject to social regulation because such regulation necessarilyprevents the Pareto optimising allocation of goods by voluntary exchange, and sosocially regulated economic action is necessarily sub-optimal, but also the beliefthat the market requires no regulation of any sort to exist Although I stronglybelieve that a properly defined market sphere should not be socially regulated(Campbell1999), I am certain that a fundamental mistake is being made here.The most important issue in social theory and economic policy is whether, inorder to exist, a market must be subject to economic regulation On the basis ofthefirst concept of economic regulation we have distinguished – the very generalconcept of it as the establishment and maintenance of a legal framework withinwhich legitimate economic activity may be carried out– it would seem that thismust be the case But our understanding cannot be driven by mere definition

We must decide whether the market is an in some sense natural or spontaneous

form of organisation requiring no regulation, a free market as it is generally put,

or whether the market requires economic regulation in order to exist

In order to make this decision, two senses of regulation bound up in theconcept of economic regulation must be distinguished These may be called ex

a framework for economic activity and the second its maintenance Let usfirst consider the latter, having assumed that a market economy has beenestablished The question arises whether that economy is capable of whatMarx called reproduction, in the sense that its operation will not of itselfundermine the conditions of the market’s existence Marx, of course, did notbelieve this to be the case, and twentieth-century corporate capitalist economicpolicy has been based on an acceptance of variations of the two fundamentalreasons he gave for this belief: under-consumption (or over-production) and theconcentration and centralisation of capital Keynesian demand managementhas been thought necessary to counteract a structural tendency of the capitalist

Competition policy of some sort has been thought necessary to counteract

a structural tendency towards monopoly

Pigou believed social regulation to be necessary even if competitive tions obtained, but also that economic regulation of monopoly was necessary toensure those conditions obtained as widely as possible (Pigou1952: 336) To theextent that it correctly identifies structural tendencies of the market to undermineitself which it seeks to counter, this ex post economic regulation seeks in a sense

condi-to impose a non-market pattern Nevertheless, such regulation should be fied as economic rather than social because the pattern is claimed to be that whichwould be produced by a self-reproducing market The distinction I am trying tomake underpins Keynes’ at first blush strange claim that his views were ‘mod-erately conservative’ because he sought to alter the volume but not, save as was

reason to assume that the existing system seriously misemploys the factors ofproduction which are in use’ (Keynes1936: 379) This was a profound criticism

of Pigou because the correction of such misemployment is, of course, the entirepoint of Pigouvian social regulation

Despite the fact that, particularly in regard of the ‘natural’ or ‘network’

industries’, the boundary between economic and social regulation has, as

a practical matter, been impossible to draw, we can put to one side the plausibility

or otherwise of the unarguably paradoxical concept of ex post economic tion because our focus here is on the concept of ex ante regulation Can a generalmarket economy exist at all without legal regulation establishing it? I will veryunfairly, given its interest, put the literally anarchist response to this question toone side, as it is a distraction from our concerns here The overwhelming

regula-12 David Campbell

proportion of deregulatory or free market responses to this question are notliterally anarchist, though they often do confusingly seek to utilise the rhetoric

of anarchism, but acknowledge the necessity of providing a legal regulatoryframework which directs autonomous, self-interested action, which can, ofcourse, take unwelcome forms, into beneficent channels by securing what vonMises (1981[1922]: 36) called a necessary ‘peacefulness’ These argumentsconcede the fundamental point that some economic regulation is essential, andtherefore that the issue isn’t whether to regulate but how to regulate

Actual deregulatory policy is therefore handicapped, not so much by theillusion of a free market, as by the tediously invariably minimalist view of therole of the state (Campbell2003b: 56–57; Campbell and Klaes2005: 278–89) –the mere prevention of force or fraud as Mill (1965[1848]: 936) said of laissezfaire– which follows from understanding regulatory institutions in a whollynegative way, as a mere cost rather than as institutions facilitative of welfare-optimising orientations of action (Campbell 1996b: 505–7) But even theseminimalist views recognise that markets are constituted of a mixture of regula-tion and spontaneous order, and the regulatory problem is, as it were, determin-ing the proportion of the mixture The crucial point is that ex ante economicregulation understood on this basis is regulation of action which is in some wayontologically prior to the regulation, and has its own determining principleseparate from, though obviously potentially affected by, that regulation.Hayek’s outstanding statement of the position is that:

In any group of men of more than the smallest size, collaboration will always rest both

on spontaneous order as well as on deliberate organisation It is advisable to reservethe term‘society’ for spontaneous overall order so that we may distinguish it from allthe smaller organised groups which will exist within it Of [these] one whichregularly occupies a very special position will be that which we call government.Although it is conceivable that the spontaneous order which we call society may existwithout government, if the minimum of rules required for the formation of such on order

is observed without an organised apparatus for their enforcement, in mostcircumstances government becomes indispensable in order to ensure that thoserules are obeyed [But] though spontaneous order and organisation will always coexist,

it is still not possible to mix the two in any manner we like although we canendeavour to improve a spontaneous order by revising the general rules on which itrests, and can supplement its results by the efforts of various organisations, we cannotimprove the results by specific commands that deprive its members of the possibility ofusing its knowledge for their purposes (Hayek1982: 46–51)

1.3 Left-wing criticism of the free market

This paper is written to address what I believe is an abiding shortcoming of wing criticism of the market: that it fails to reproduce anything like Hayek’s

left-awareness of the inner determining principle of the action that is to be regulated

by ex ante regulation.1 This has emerged very clearly from the left-wingproposals forfinancial regulation in the wake of the crash In one of the mosttheoretically penetrating exposures of the shortcomings offinancial regulationthat played their part in causing that crash, Professor McVae has shown that theassumption that the market is‘a natural – or at least naturally preferred – form

of social organisation’, which leads to the general conception of regulation as

‘an essentially ancillary and subservient’ response to market failure, is tifiable (McVae2005: 416, 431) McVae is right in this, and also is right to go on

unjus-to argue that, rather than confining our view of regulation unjus-to what I have calledsocial and ex post economic regulation, that view must include ex ante eco-nomic regulation: ‘the state represents the cradle within which all markets[including] sophisticated financial markets – are constituted and sustained’(McVae2005: 431–32) He sums up his views thus:

The so-called free market amounts to nothing more than‘a social choice for a particularkind of regulation, not only in its negative features of [relative] nonintrusion uponprivate agreement, but in its positive features of enforcing those agreements .’ as well

as endorsing– or at least tolerating – the often predictable outcomes of such ments As a result, proponents of freer markets must argue the merits of their preferredapproach in much the same way as those who support a less free market must do fortheirs (McVae2005: 432–23, quoting Rubin1988: 1267)

arrange-Whilst I wish to stress my agreement with this rejection of the concept of thefree market, I believe it contains a series of unsustainable implicit arguments.What had been described as‘constituted and sustained’ is redescribed as ‘socialchoice’ But are we free to ‘choose’ social arrangements in this way? If the task

of ex ante regulation is the channelling of the autonomously defined interest of economic actors, then‘social choice’ is not an entirely happy termbecause our choice is so constrained that, in important respects, there is nochoice If one acknowledges the autonomous definition of one’s self-interest (inthe face of scarcity) as the fundamental principle of free economic action, onecan regulate for a productive general economy only by facilitating marketaction One could, of course, instead choose to regulate on some other basis,such as, if this term may be allowed for purposes of argument, altruism.However, if economic actors are themselves to have the freedom to definewhat constitutes altruism, then such altruism is indistinguishable from auton-omously defined self-interest An economic actor may choose to commit hisresources to the purchase of degrading pornography, or an improving book, or

self-1 For a statement of the general position I wish to criticise by one of the most interesting at all recent contributors to Marxist social theory, see Meiksins Wood ( 1981 : 72): ‘Marx’s purpose

is to stress not the dualism of the “material” and the “social” but the definition of the material by the social ’.

14 David Campbell

equipping a foundlings hospital But, if it is he who chooses, then whether onecalls his motivation self-interested or altruistic is irrelevant; the crucial point isnot the substance of the choice but that the choice is autonomous Whilst theconcept of piecemeal social regulation turns on recognising that non-marketaction may well improve welfare in some defined instances, this improvement

is secured by an exercise of coercion which extinguishes that autonomy, and theimplicit claim in McVae’s way of putting it, that one can choose a general non-market economy, is incompatible with a general recognition of freedom ofchoice

If by‘freer markets’ we take McVae to mean use of a market, then he is alsowrong to think the choice of market and non-market organisation should beplaced on the same basis If one identifies optimal welfare with voluntarychoice, an optimising general economy must take the form of a market, andthe ex ante regulation of the general economy must seek to create a market.Arguments for creating non-market spheres must be conceptualised as piece-meal cases for social regulation by state intervention Of course, the choice ofmarket and non-market governance should be open and balanced in anyparticular case, and it is obvious that the concept of deregulation is based on

a biased approach to this choice (McVae2005: 431) But the Pigouvian ception of intervention commits, as it were, the opposite error to that involved

con-in the concept of deregulation Instead of no regulation becon-ing necessary, allregulation can be social regulation because all regulation is conceived of asintervention I have argued elsewhere that the Pigouvian tradition rests on thisconceptualisation of all regulation as intervention, so that the argument fornecessary ex ante regulation is taken to justify social regulation when, indeed,the two are opposed (Campbell 1999) McVae subscribes to thisconceptualisation:

it is disingenuous to depict state intervention which goes beyond the realm of correctingmarket failure as somehow unwarranted and in any more need of justification thanmarkets that operate with a bare minimum of state involvement (McVae2005: 432).The sophisticated question McVae thereby leaves us with is not whethermarkets must be based on regulation It is whether the fact that markets must bebased on regulation leaves us with an unconstrained social choice of forms ofgeneral economy; in essence, whether the necessity of ex ante economicregulation equates to unlimited possibilities of social regulation I do notremotely pretend to give a full answer to this question here What I insteadpropose to do is examine the outstanding attempt to give expression to thispurely social view of regulation: that of Marx

Marx has written some of the most important passages that have ever beenwritten in the history of social theory, and amongst them I would include thefollowing:

The economists [claim that] everyone pursues his private interest and only his privateinterest, and thereby unintentionally and unwittingly serves the private interests of all,the general interest [But this] abstract statement could rather lead to the conclusion thateveryone mutually hinders the assertion of the interests of everyone else, and instead of

a general affirmation, a general negation results from this bellum omnium contra omnes.The point is that the private interest is itself already a socially determined interest, whichcan be achieved only within the conditions of society and with the means provided bysociety It is the interest of private persons; but its content, as well as the form andmeans of its realisation, is given by social conditions independent of all (Marx 1958:vol 28, 93–94)

I believe that this passage anticipates all that has of value emerged in the wing conceptualisation of regulation as a criticism of the free market However,

left-it is not on the strength of Marx’s views expressed in this passage that I willdwell, but on their weakness This understanding of the social construction ofthe private led Marx to give an account of capitalism the value of which onewould have said it was impossible to exaggerate, were it not that the history ofthe twentieth century was in substantial part the history of its exaggeration But

it also led him to posit a communist alternative which so decoupled socialpossibility from the existential constraints on that possibility which capitalismrecognises that, against Engels’ and Marx’s most profound intention, itamounted to a mere utopia I have made my own contribution to the analysis

of this tragic failure elsewhere (Campbell 2003a; 2011) Here I intend toexplore how disregard of these constraints and a consequent utopianisminformed the central concepts of Marx’s economics

1.4 Early British left-wing criticism of the labour theory of value1.4.1 Shaw and Keynes on Marx

A considerable part of the persuasiveness of The General Theory ofEmployment, Interest and Money lies in the way its argument is developed inrelationship to the history of economic theory as a critique of ‘classicaleconomics’ as Keynes understood them (Keynes1936: 3 n.1) Keynes believedhimself to be taking the term‘classical economics’ from Marx,2

but whereasfor Marx those economics reached their apogee in Ricardo, Keynes, writingsome 50 years after Marx’s death, extended this term to cover all those afterRicardo whom Keynes believed had adopted a fundamentally Ricardianapproach, in which category he included Marx He had, of course, somewarrant to do this because of Marx’s commitment to the labour theory ofvalue But whilst Marx’s conception of classical political economy is based2

The term Marx ( 1867a : 91 n 1 ) himself preponderantly used was ‘classical political economy’.

16 David Campbell

on immense learning about the history of the subject and has a precise tical function,3Keynes’ classical economics is based on sometimes dreadfullyslipshod scholarship and is amorphous to the point of incoherence Though, as

theore-we shall see, Keynes’ essential criticism of classical economics was that itwrongfully saw the capitalist economy as capable of reproduction, Keyneseven included Pigou amongst the classical economists, and, indeed, madePigou’s Theory of Unemployment the main target of his attack on those

pay any attention to involuntary unemployment even in the fourth, 1932,

that the criticism of capitalism informing his views on economic and socialregulation was, for Keynes, nullified by his not subscribing to essentiallyKeynes’ view of unemployment One sees the justice in Pigou’s own rejection

By using classical economics in so wide a sense, Keynes sought to conveythat the Ricardian approach was taken by both those committed to laissezfaire and by socialists such as Marx The former thought Ricardo’s concept

lead to reforms of capitalism such as‘to justify economists taking their seat

3 So often criticised as dogmatic or even theological, Marx ’s views on the history of economics were grounded in an enormous, and enormously perceptive, scholarly effort, on the basis of which he produced his own political economy as a scrupulous immanent critique of his predecessors (Campbell 1996a ) We can now see that Marx ’s critique of classical political economy was, at its heart, a forcing of the material into an eschatology which essentially was

a Hegelian ‘end of history’, but this in no way detracts from Marx’s objectivity, save to say that it was subject to human limits Projected as a fourth volume of Capital on ‘the history of the theory’ (Marx 1867a : 11), Marx ’s commentary on political economy was made available (in a somewhat abridged form) as Theories of Surplus Value by Kautsky between 1905 and 1910, Kautsky taking this material from the enormous economic manuscript which Marx wrote between 1861 and

1863 which is now entirely available in English (Marx 1863 ) The Theories are, as it were, reconstructed in the form of a sustained narrative in Rubin ( 1979 ), a textbook Rubin prepared for

a course on the history of economic thought based on the Theories which was given in the USSR

in the twenties Rubin was purged in 1930, subsequently horribly treated, and killed probably in 1937.

4 Keynes scathingly criticises this in The General Theory (Keynes 1936 : 5 n 1 ) Pigou lived until

1959 but after 1932 never revised The Economics of Welfare He provided eight new appendices for a 1952 ‘fifth edition’ which was otherwise a reprint of the fourth edition, but did not address The General Theory even in one of the appendices (Pigou 2002 [1952]: lxx) Pigou had, of course, done this in other work, most substantially Pigou ( 1941 ; 1949 ; 1950 ).

5 Pigou did not retract from this criticism of the method of Keynes ’ approach when, in later years,

he reached a more sympathetic view of its substance: Pigou ( 1950 ).

incontrovertible that Keynes did have some vague conception of a capitalist society in which‘the economic problem’ had been solved (Keynes

post-1931: 325), the reason his conception of classical economics is so vague isthat he has to push his predecessors into one of two defective camps in order

to set up the opposition he conceived it was to be his great achievement toresolve by identifying a suitable reform of capitalism He thereby takes hisplace in the very large but by no means exhausted litany of British socialtheorists and politicians who believe they have found the third way; socialdemocracy’s equally tedious parallel to dialectical materialism’s reduction

of the dialectic to what Hegel had called a ‘monotonous formalism’ (1977[1807]: 30)

Of Marx, Keynes could not have had a lower estimation He was really quitefecund in framing unpleasant comments about Marx, perhaps reaching his lowpoint when he turned a phrase taken from Trotsky’s (1973[1925]: 90) famousdiatribe– this word isn’t strong enough – against Fabianism back against Marx:

‘together with theological literature, perhaps the most useless, and in any casethe most boring form of verbal creation’ (Keynes 1951: 67) The enormousinfluence, which he fully acknowledged (Keynes 1934b), of ‘a doctrine soillogical and so dull’ as Marx’s (Keynes1931: 285) was, Keynes (1934b) freelyadmitted, something he could not explain, and his opinion of Capital was that itwas‘an obsolete economic textbook, which I know to be not only scientificallyerroneous, but without interest or application for the modern world’ (Keynes

1931: 258), its ‘contemporary economic value [being] nil’ (Keynes 1934b,original emphasis)

Keynes’ criticism of the Ricardian approach in The General Theory was not,

of course, directed at Ricardo’s theory of value as such but at Ricardo’sacceptance of Say’s Law, which ruled out the possibility of the shortfall ofeffective demand in the capitalist economy which it was Keynes’ aim toestablish And, this being the case, Keynes’ treatment of Marx inThe General Theory lacked, as Schumpeter pointed out in his review, verecun-dum, in the sense of a lack of proper respect (Schumpeter 1936: 792 n 2).Keynes was aware that Marx had maintained the possibility of under-consumption against the Ricardian ‘orthodoxy’, but gives Marx little or nocredit for this in the review of under-consumption theories in The GeneralTheory, where Marx is barely mentioned Schumpeter was right tofind Keynes’classing Marx with Silvio Gesell6 and Major Douglas (Keynes 1936: 32)offensive (Schumpeter 1936: 792 n 2) There are, in fact, grounds on whichKeynes can be criticised for maintaining contradictory views of Marx’s

6

Keynes ( 1936 : 355) said, indeed, that Gesell had much more to teach us than Marx, and even seems to come close to allowing that Gesell anticipated his (Keynes ’) own ‘third alternative’ (Keynes 1936 : 379).

18 David Campbell

achievement as a theorist of under-consumption.7But I do not want to pursue this

as, for what my own opinion is worth,8I believe that it is questionable whetherKeynes, despite claiming to have done so (Keynes1934b), had even read Capitalwith attention, but that it is not questionable that he did not remotely appreciatethe value of the profound social theoretical context in which Marx situated hiscritique of Ricardo’s attachment to Say’s Law As Joan Robinson rightly said,

concerned’ (1948: 145), and this denied him a valuable resource for his ownthinking.9Even by the standards of what was possible in the 1930s, when theunderstanding of Capital was extremely handicapped by the unavailability ofmany other crucial texts, Keynes’ treatment of Marx was just not good enough,and it does not have substantial theoretical interest

Nevertheless, I want to argue that, to the extent that Keynes’ low estimation

of Marx was based on a dismissal of the labour theory, then it was correct, for

course, the belief that had informed almost all British left-wing opinion on thematter since George Bernard Shaw, in his self-appointed capacity as the

attachment to the labour theory and stated the Fabian understanding of value inmarginalist terms in what became the enormously influential Fabian Essays

proper consideration to the brilliant criticism of volume one of Capital by

on the marginalism of particularly Jevons with an abiding concern for nomic and social reform that made him sympathetic to socialism Shaw neverseems to have resiled from a very positive opinion of volume one of Capital

Though Robinson would, of course, have largely agreed with Keynes ( 1935 ) when he told Shaw

he was writing a book ‘which will largely revolutionise the way the world thinks about economic problems ’, she effectively ridiculed his belief that, as part of this, ‘the Ricardian foundations of Marxism will be knocked away ’ ‘[S]tarting from Marx’, Robinson observed ( 1966 : 96), ‘would have saved [Keynes] a lot of trouble’ Robinson is right to claim that it is highly instructive in this respect to assess the strengths of Kalecki ’s independent statement of

a position comparable to that set out in The General Theory, but informed by an in finitely more profound understanding of Marx: Kalecki ( 1990 ff: vol 1, pt 5).

(Shaw1930: 168),10but his revised opinion of Marx’s theory of value was as

Marx, together with Henry George and John Ruskin, in a demeaning trilogy of

Shaw’s opinion is preposterous but it was at least undoubtedly based on

wrote a review after it appeared in English in 1887 which deprecated theattachment to the labour theory whilst applauding what he saw, in a sort ofdepiction of volume one as a socialist Hard Times, as its justified revolutionary

does not detract from their very considerable political significance;11

indeed it

is an important aspect of that significance After the remarkable success of

important to spend an, admittedly contemptuous, line or two on them in hisPreface to thefirst, German edition of volume three of Capital (Engels1894:13) That Marx’s influence on British left-wing politics was confined to beingmerely a source of rhetoric12was demonstrated during the early history of the

as it was demonstrated at the time leading up to the creation of the universal

11 In an admirable display of tact, when contributing to a commemoration of Shaw ’s ninetieth birthday, Maurice Dobb ( 1946 ), unquestionably then the leading British Marxist economist, managed to write a piece on Shaw ’s economics which celebrated his polemical socialism, which

he (Dobb) attributed to Marx ’s continuing influence, without saying anything whatsoever about the substance of those economics!

12 H.M Hyndman ’s economic and sociological thought is, in my opinion (which was not entirely that of Engels and Marx themselves), an interesting contribution to Marxism, but, of course, politics of Hyndman ’s sort were just those pushed to one side by the success of Fabianism 13

We now have the direct testimony of Orwell ’s first wife confirming that Orwell had read nothing

of Marx prior to 1937, i.e., until after he had written part 2 of The Road to Wigan Pier, and that when he and his wife did read Marx ‘a little’, they conceived a ‘strong personal dislike of the man ’(Blair 1938 : 72) In addition to the immensity, which de fies belief, of the effort he made to pull all of Orwell ’s extant writings into the Complete Works, Dr Peter Davidson, the editor of those Works, took commensurate pains to provide supplementary material which would make Orwell ’s social and political context understandable to a contemporary audience He rescues countless figures from obscurity in order to flesh out that context We are indebted to him for an edition which, in addition to its literary and theoretical value, is itself an important historical document Nothing, then, can show how little Marx had any signi ficance for that context than the incredible fact that, with all his knowledge of Orwell ’s thought and its background,

Dr Davidson ( 2006 : viii) evidently believed that Marx was Russian!

20 David Campbell

having the reputation of being capable of‘breathtaking Marxist paradoxes andepigrams’ (Rees1961: 147).14

1.4.2 Wicksteed on Marx

I cannot hope to add to the substance of Wicksteed’s critique of the economics

of the labour theory, the essence of which I will merely restate in a way whichsets up my subsequent argument I do hope, however, to add political and legaldimensions to the economic critique of that theory, and the point I wish to make

is that it can have an appeal only if one has an authoritarian view of howeconomic goods should be allocated Given the existential conditions of eco-nomic action, if one wishes the allocation of economic goods to be based onfreedom of choice, one must use a market to allocate those goods The reasonsthat Marx was able to adopt the labour theory are that market allocationobviously is open to enormous criticism, and that he did not recognise that itscomplete rejection inevitably would have authoritarian results

There are certain immediate objections to the labour theory of value whichMarx saw and with which he sought to deal early in the account of that theory inpart one of volume one (Marx1867a: 50–51), and I shall focus on one of them

If the value of a commodity was a matter only of the labour needed to produce

it, then any product of labour should, within the capitalist mode of production,have a value and, therefore, ultimately a price But capitalism is, as is any mode

of production, a form of human interaction with nature, which is a matter of theproduction of use-values Commodities are use-values produced for exchange,but they will exchange only if they are‘social use-values’ which have a use-value for the buyer:‘nothing can have a use-value without being an object ofutility If the thing is useless, so is the labour contained in it; the labour does notcount as labour, and therefore creates no value’ (Marx 1967a: 51)

Marx is able to maintain a very strong separation between use-value andexchange-value in respect of goods which were produced for sale which do notfind a buyer because no buyer finds them useful Being unsold, these goods donot have a value because they have, to put it this way, failed to becomecommodities, and Marx’s logical apparatus for strongly distinguishing use-value and exchange-value as two separate factors of a commodity (and derivingfrom this the twofold nature of the labour process) can deal with this

A commodity which cannot be sold has no value, regardless of how muchlabour time is embedded in it But, certainly with the hindsight provided by thesuccess of the marginal revolution, it is unarguable that this highly restricted

14 See further Crick ( 1980 : 201 –2) and Davidson ( 2006 : viii) I have no doubt that Orwell ’s

‘marxism’ was in fact entirely taken from the pastiche of the materialist conception of history to

be found in many of H.G Wells ’ fictional and non-fictional writings such as The Outline of History and The Shape of Things to Come (Orwell 1941b : 539).

view of the influence of use-value on price is quite wrong It turns on

effect, from the class of commodities as such, which are exchanged, and thevalue, and therefore ultimately the price, of which is to be determined, Marxclaims, by labour inputs alone

But it is not possible to draw this line between the products of labour which

dofind a buyer and those which do not, for the value of a good which is able to

be sold also is a function of both supply and demand The same factors ofsupply and demand which Marx acknowledges will, in an, as it were, on/offmanner, prevent some goods having a value at all also enter into the determina-tion of the value of most goods, their respective roles having to be analysed, as

it was Wicksteed’s main aim to argue, at the margin These factors from theoutset reflect both the production cost of the good’s supply and the effectivedemand for it, which the rational capitalist will seek to predict And, at a furtherlevel of analysis, prediction of demand also enters into the amount of invest-ment in research and development, which itself enters into the determination ofthe technological conditions of production cost Marx’s, in itself correct,acceptance that demand determines the zero value of goods that do not sell issimply not consistent with treating the value of goods that do sell as determinedonly by labour inputs Wicksteed therefore is right to say that Marx does notshow that abstract labour is the only property common to commodities butrather that, if I may modify Wicksteed’s term, abstractly useful labour is that

Marx, of course, fully acknowledged the role of demand in the determination

of price, and he tried to account for this by solving what has come to be known

essence of the transformation problem is that price is but a derivation fromvalue, and the capitalist process of its derivation, generally competitive supplyand demand, is but a mechanism, and, indeed, a very imperfectly workingmechanism, for accomplishing the social task of allocating labour I can saynothing here about the, as it were, technical economics of the transformationproblem, for my former belief that I understood those economics has beenreplaced by a belief that they are incomprehensible, and, though the last thingthat this means is that they are without interest, this is not the place to explorethis, for I now believe this is a matter only of the history of economic theory.Marx’s fundamental economic concepts are so weak that it must be said that thedismissive British left-wing attitude towards them taken by the later Shaw and

by Keynes is, ultimately, justified However, I do feel I can say something ofinterest about the political and legal aspects of Marx’s economic thought whichhave continued to exert enormous influence on left-wing thought, and to this

I now turn

22 David Campbell