The wealth of more than 2,200 billionaires across the globe had increased by $900bn in 2018 – or $2.5bn a day. The 12% increase in the wealth of the very richest contrasted with a fall of 11% in the wealth of the poorest half of the world’s population… The World Inequality Report 2018 – co-authored by Piketty – showed that between 1980 and 2016 the poorest 50% of humanity only captured 12 cents in every dollar of global income growth. By contrast, the top 1% captured 27 cents of every dollar.

These obscene levels of inequality link clearly with the growing problem and crisis of legitimacy of neoliberalism, as I discussed in my article here.

But, aren’t we told there is no money left? That the free market and capitalism is the best way? That we can’t curtail the freedom of the market as otherwise we risk a brain drain, a race to the bottom, or a lack of entrepreneurial spirit?

Fredrick Hayek – a significant influence upon the rise of neoliberalism in the 1980s – was very critical of government interference in the market, arguing it was the manipulation of money by the government that created problems regarding malinvestment and savings linking to the Austrian theory of the business cycle. Criticised economically, it was politically that Hayek had his most significant impact, including influencing Margaret Thatcher, who as UK’s Prime Minister was central to the rise of the neoliberal project.

The other political economist that is often cited as having a central influence on Thatcher and neoliberalism is Milton Friedman. Friedman has talked about the influence Hayek had on him:

Milton Friedman emphasizes that he is “an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his capital theory book [The Pure Theory] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time.”

The Road to Serfdom was the first interaction Thatcher had with Hayek’s views, with the Margaret Thatcher Foundation arguing “in fact one can argue that few books influenced her more deeply at any point in her life”. The Foundation goes further when discussing the book’s influence on Thatcher:

She absorbed deeply Hayek’s idea that you cannot compromise with socialism, even in mild social democratic forms, because by degrees socialism tends always to totalitarian outcomes, regardless of the intentions, professed or real, of its proponents. And she saw that her own party had done just that, putting her deeply at odds with its collective leadership.

After the post-war consensus was smashed, the return of Hayek – marked by his Nobel Prize for economics in 1974 – was instrumental to Thatcher, with the Foundation stressing this was a political, not economic, influence:

While there is no reason to doubt Hayek’s emblematic significance to the Thatcherites in their search for new roots, it was as a political and economic philosopher that he mattered, not as an economist. And The Road to Serfdom counted for more than The Constitution of Liberty, the critique of socialism more than the vision of a pared-down liberal state.”

There has been an increasing interest in Hayek’s economic writings given the 2007-8 crisis, with people looking for alternative explanations to why the sub-prime mortgage crisis happened. Hayek historically is mostly forgotten in mainstream economic debates, with it often being summarised as ‘John Maynard Keynes vs. Milton Freidman’. Comparing and contrasting these three thinkers, Hayek and Friedman advocated for free markets with limited, to no (in the case of Hayek), government intervention whilst Keynes encouraged government intervention, yet Hayek and Friedman disagreed on monetary policy with the former believing it created boom and bust cycles (as discussed above) whereas the latter believing it helped navigate economic crises. Keynes’ focus on fiscal policy was something both Hayek and Friedman were against. Therefore, concluding:

If we look at interventions government has taken to help “stimulate” the economy, the actions are more akin to the economics of Keynes and Friedman, where Congress passes stimulus packages, and the Central Bank inflates the money supply. Mainstream economics is a hybrid of the Keynes and Friedman approach. However, from Hayek’s view, the actions of a “stimulus” and inflation sow the seeds to next bust. In one respect, Friedman is a “Keynesian”, but in another he is not. The free market usually gets associated with Friedman, but not all free market folks follow Friedman’s economics. Many free market economists follow Hayek’s vision of economics, Austrian Economics. Austrian Economics rarely uses any mathematics, but seeks to understand human action. It takes into account the human element of economics.

The market and capital interests have not been left to be ‘free’ and fail. If we are to follow a Hayek approach to the markets, the banks and financial actors central to creating the sub-prime mortgage crisis, they should have been left to fail. However, Cédric Durand in his book, Fictitious Capital: How Finance is Appropriating Our Future (2017), shows that:

Between autumn 2008 and the beginning of 2009, the total amount that states and central banks in the advanced countries committed to supporting the financial sector (through recapitalisation, nationalisation, repurchasing assets, loans, guarantees, injections of liquidity) has been evaluated at some 50.4 per cent of world GDP! (page 39)

You only have to look at how much state money has been thrown at Amazon in the US as they searched for their second headquarters to see how important the state has been for supporting capital, financial interests and the market. Richard Wolff discusses this in detail, referring to how Amazon invited all US States to bid and ‘compete’ to be the location. Key to Amazon splitting its second headquarters was the overwhelming response and attractive bids from the States, with Amazon deciding to have their headquarters in New York City, New York and Crystal City, Virginia with the total estimated cost for the headquarters standing at $10.5 billion and crucially subsidies given by the two states and cities amounting to an estimated $5.5 billion.

Let’s remember, the owner of Amazon, Jeff Bezos, is the richest man in the world, and the Oxfam report shows how he “saw his fortune increase to $112bn. Just 1% of his fortune is equivalent to the whole health budget for Ethiopia, a country of 105 million people.”

The state supports the corporate and capital interests whilst politically we argue about the virtue of the free market. This goes alongside the Oxfam report criticising governments around the world for not investing in public services, meaning inequality is getting worse.

The concept of the individual over the collective, the critique of socialism and the advocacy for the free market are all related to support for the capitalist system. Whilst Hayek’s economic opinions might be becoming more popular for some, it must be remembered that this is a political decision. In search for creating an alternative argument – one that takes attention from the inherent contradictions and flaws of the capitalist neoliberal system – Hayek’s theory can quite easily be utilised to take attention away from the financial actors that have constructed financial instruments such as collateralized debt obligation with limited regulation, think tanks (such as the Mont Pelerin Society, which Hayek and Friedman, amongst others, founded) and spent lots of money to ‘buy’ politicians and political parties to create a political class project where a very few people own the majority of the world’s wealth.

For instance, Oxfam’s report found since the financial crisis, “the number of billionaires has nearly doubled…between 2017 and 2018 a new billionaire was created every two days” and to top this off, “the poorest 10% of Britons are paying a higher effective tax rate than the richest 10% (49% compared with 34%) once taxes on consumption such as VAT are taken into account.” This links into the problem regarding the concept of value, price and the market, something I discussed with Jay Baker in a recent vlog of ours as part of Jay & Jane.

The Oxfam report calls for a wealth tax to address the global wealth inequalities:

It said the widening gap was hindering the fight against poverty, adding that a wealth tax on the 1% would raise an estimated $418bn (£325bn) a year – enough to educate every child not in school and provide healthcare that would prevent 3 million deaths.

This relates to the problems of an unspoken acceptance of the ‘right’ of capital mobility, and how important capital controls are to bring in – alongside taxes such as a wealth tax – to address the global economic imbalances. This is something Grace Blakeley discussed in great detail when referring to the 70% marginal tax rate that Alexandria Ocasio-Cortez has proposed:

The golden age of capitalism took place under the Bretton Woods system of exchange rate pegging, which permitted the use of capital controls (limits on the amount of money that can be brought into or out of a country). These controls were anathema to the global elite, which sought the right to move their money to wherever the most profitable investment opportunities – and lowest tax rates – could be found. Friedrich Hayek – the intellectual godfather of neoliberalism – called capital controls “the decisive advance on the path to totalitarianism and the suppression of individual liberty…Raising top marginal tax rates is the best moral and economic course of action for the UK, but any socialist government that attempted to do so would be punished severely by “the markets”. Without constraints on capital mobility, investors will continue to exercise a veto power over domestic states’ fiscal policy, and tax competition will only get worse.

We therefore need to be aware of the ideological and political theories and arguments that have underpinned the dominant economic arguments tied with Western governments and global institutions such as the International Monetary Fund, and crucially central to the neoliberal project, if we are to tackle these global wealth inequalities. The market has been supported for years by the state, with governments only willing to bail out corporate and capital interests and then politically blame everyone else in the hopes of divide and rule. This has worked. But it is also facing a huge legitimacy crisis after the 2007 crash. It is about seizing control of this narrative, as key political actors across the world are, and arguing that democracy needs to be at the heart of the economy as well as in our political system and that capitalism is antithetical to this.

Jane Watkinson (she/her) is an anti-capitalist, intersectional feminist and vegan interested in Marxism, social ecology, sociology, revolutionary humanism, and studying radical social, economic, and political theory and how this can be applied in practice. She is a freelance researcher working in the community sector. Her LinkTree is here.

Britain’s household debt mountain has reached a new peak, with UK homes now owing an average of £15,385 to credit card firms, banks and other lenders, according to the TUC… The level of unsecured debt as a share of household income is now 30.4%, the highest level it has ever been at. It is well above the £286bn peak in 2008 before the financial crisis, the TUC said.

Related to 10 years of Conservative-led austerity, household debt has increased as a way to respond to the pressures of being able to afford basic necessities. David Harvey, Distinguished Professor of Anthropology & Geography at The Graduate Center, CUNY, discussed in his latest podcast the concept of necessities and its relation with the concept of freedom. It is often argued that freedom is an exclusive capitalist neoliberal offering, and that a socialist system would remove individual freedoms from people (this argument mostly relies upon comparisons with ‘communist’ regimes such as Soviet Russia, which are criticised by many socialists and would certainly have been criticised by Karl Marx). Whilst this may be true if your individual freedoms include being able to be very, very rich at the expense of the majority, socialism via the public domain, rather than the market, would provide more people more individual freedom by providing everyone with access to basic necessities. Harvey cites Jeremy Corbyn’s Labour party policies as a good example of how this can work in practice.

The level of household debt reported by the TUC, which also as a note doesn’t include outstanding mortgage debts, also relates to the rise of insecure, low paid work. The household debt figure reported on included “the total amount lent in bank overdrafts, personal loans, store cards, payday loans and outstanding credit card debts. It also included student loans, which added a substantial amount to the figures.” The research also doesn’t include Christmas debts, which as I discussed in a previous article, takes on average 5 months to pay off!

The centrality of debt is not a surprise. David Harvey argues in his book Rebel Cities: From The Right to the City to the Urban Revolution that understanding the credit system needs to be central to a critical conception of how the system works and the increasing crises and instability it faces:

Internalizing the credit system and the relation between the rate of interest and the rate of profit within the general laws of production, circulation, and realization of capital is likewise a disruptive necessity if we are to bring Marx’s theoretical apparatus more acutely to bear on actual events.

The rise of fictitious capital has been central to sustaining the capitalist system but also creating pressures and demands upon it that resulted in the 2007/8 crisis (The Big Short is a fantastic film illustrating this very well). However, private debt was transferred into public debt, with well organised and designed campaigns blaming everyone and anyone, whether that be refugees, benefit claimants, ethnic minorities etc. to take attention away from the role of capital and especially fictitious capital in creating the crisis (it’s a lot harder to quickly explain what a Collateralized Debt Obligation is!). Related to this blame game is the political programme of austerity, which attracted condemnation from the United Nations Special Rapporteur on extreme poverty and human rights, which I wrote about in a recent article, and has created an economy that the TUC report shows is more reliant on unsecure debt than ever before.

We have created a system where we ‘value’ the ‘rights’ of fictitious capital over ordinary people, where the failures of the market are protected by the state whilst the same state unleashes a political programme that creates record levels of household debt, insecurity and low wages, as local services are closed or cut. This relates to the contradictions of capitalism and neoliberalism, which David Harvey has written and spoke a lot about and which I touched on in my previous article regarding the contradictions created by demand side economics and supply side economics, with the former relating to Marx’s arguments in Volume 2 of Capital regarding the need for capitalism to be careful when depressing worker and labour power, as there is an awareness that workers need to be able to consume and spend to keep the system going and the latter relating to the issues Marx talks about in Volume 1 of Capital, especially regarding the need to destroy labour power in order to maximise the surplus value and profit relating to capital mobility and also the creation of fictitious capital.

These contradictions create instability and systemic problems, as shown by how there are concerns regarding another crisis happening in 2020 (see here and here for instance). The system isn’t sustainable nor does it work for the majority of people.

Jane Watkinson (she/her) is an anti-capitalist, intersectional feminist and vegan interested in Marxism, social ecology, sociology, revolutionary humanism, and studying radical social, economic, and political theory and how this can be applied in practice. She is a freelance researcher working in the community sector. Her LinkTree is here.