Last week a friend related a well-known saying from the former Yugoslavia: “No matter how little you pay me, I will work less than its worth.” The saying is instructive on several levels. On the surface it displays a keen grasp of economic rationality: no investor invests more in any investment than it is worth; savvy investors in fact always try to invest less than their return. From this vantage-point, we are led to believe that the workers who repeated this aphorism in the former Yugoslavia were already displaying one the signal qualities of economic rationality: buy near, sell dear. Makes sense. Yet I am sure that those who repeat this aphorism today — and perhaps those who told it initially — meant something else. “Do you want to know why the former Yugoslavia is suffering such economic woes today?” they ask. “Well,” comes the answer, “its because they lost their work ethic under Tito’s Yugoslavia.” “Or,” in evidence of the lack of a work ethic in the former Yugoslavia, “here is an aphorism the workers used to repeat among themselves.”
I am thinking of this aphorism today because an extremely brilliant scholar in the United States (who shall remain unnamed) recently commented on one of our blogs that it was naive for today’s protestors in the former Yugoslavia to hope for a return to “dreadful socialist idealism.” We can ignore the oxymoron here for the moment. Nor do I probably need to tell you that this scholar is a fierce defender of free markets and a critic of public regulation of private industry. Finally, let me admit from the outset that just as in the United States and Europe, there is no small amount of nostalgia in left-leaning circles for the good ol’ days of Fordist accumulation and regulation. Big production. Big factories. Big checks. Big pensions. “Those were the days,” we all say with a wistful gleam in our eyes.
Instead, I want to challenge the notion that socialism in the 1960s and 1970s was either idealistic or destructive. This is because, first in the United States and then following World War II in Europe, the growth of organized labour and the power organized labour came to exercise over public policy followed from the historically unprecedented expansion of industrialization beginning in the 1930s in the United States. This expansion took place of course in recognition that the United States was entirely unprepared to win a two-front war, 
in the Pacific against Japan and in the Atlantic against Germany, and that, should Great Britain fall to the Germans, which at the time appeared possible, this is precisely what the United States would have to do. Rigorous wage and price controls and rationing notwithstanding, American industries made a killing off of the war. Moreover, since production was expanding at a clip that allowed expanding wages to maintain their value, this left American consumers with an exceptionally strong dollar with which to purchase consumer goods. Big war-time industry was generally happy to work together with big war-time labour in what was experienced at the time as a Keynesian win-win victorious cycle. When following the war Europe’s war-devastated nations took advantage of the generous Marshall loan and aid program in exchange for promises to join America in its war against Soviet Communism, one of the less often commented conditions of this deal was the formation of labour organizations that pulled toward the political center generally and toward the AFL-CIO in particular.
Of course, for some free market advocates, this was not enough. They point out that the trade unions in Europe were always far to the left of American trade unions and that the social franchise in Europe always made far less room for free markets than did the social franchise in the United States. Fair enough. Still, I am not sure what ground can be gained (or lost) contesting the indisputable fact that throughout the 1940s and 1950s in the US, and then in the 1950s and the first half of the 1960s in Europe, big industry was more than happy to make up for the losses in fixed capital destroyed during the war, and organized labour was more than happy to lend a hand at a reasonable price; a price that, more often than not fell sufficiently behind actual economic growth to keep inflation in check and win handsome rewards for investors.
These facts are neither naive, nor idealistic, nor destructive. Nor are they really in dispute except perhaps by the few lost souls who have drunk from the jar of von Mises’ Kool-Aid. So the only question is: are they socialist? My friends in the free-market camp will probably want me to concede (just as von Hayek does) that there is a difference between rigorous theoretical socialism, which never actually happens to materialize, and run-of-the-mill social planning, which often materializes, but not always under the “Socialist” banner. So let me make this concession up front, both to make it easier, but also because this is really not what is at issue. What is at issue is the naive, destructive, and idealist grasp of “freedom” embraced by defenders of the free market system.
Marshall Tito, we all will acknowledge, charted a course for Yugoslavia very different from the course charted by Hungary, Czechoslovakia, Rumania, Poland and other participants in ComIntern. Yugoslavia’s worker-managed, regionally coordinated industries sought to situate themselves somewhere in-between totally free markets and totally planned economies. And, in the 1970s, when it was clear to most economists that the Fordist mode of capital accumulation and social regulation was nearing its end, Marshall Tito was among the first to begin dismantling Yugoslavia’s social welfare system and restructure its economy. Nevertheless, during that brief beau epoch, in which nearly all industrialized economies shared, running roughly from the middle of the 1950s to the end of the 1960s, all Fordist-based regimes of accumulation — socialist, capitalist, or in-between — enjoyed a period of prosperity that even Paul Samuelson, the Nobel Prize winning neo-Keynesian economist, felt would continue into the indefinite future. Samuelson won his Nobel Prize in 1970. Two years later President Nixon, acknowledging that something was terribly awry, took the US dollar off the Gold Standard, easing the transition to the new Post-Fordist regime of capital accumulation and social regulation.
What this means, however, is that ideological and even policy differences had very little effect on how any given nation faired from 1945 to 1972. The same cannot be said for the period from 1972 to the present. The new regulatory regime to which President Nixon gave birth when he ditched Breton Woods in 1972 (whose momentary motivation may have been his fear of repeating the disaster of 1960 when President Eisenhower’s refusal to ease the monetary supply probably sunk Nixon’s changes to defeat Kennedy), completely severed the already tenuous relationship between the volume and value of capital in circulation and anything like a Gold or “goldish” reserve. The decline in the dollar’s value that Nixon’s action precipitated had little influence on the election, which Nixon won by a landslide. Momentarily it increased the dollar value of foreign-made goods, leading to a decline in their consumption, and it increased the purchasing of US produced goods in America’s largest market — the US — and so had a slight effect on US employment. But its most significant effect was the flooding of world markets with cheap dollars at bargain basement prices. (Among those to take advantage of these cheap dollars was Marshall Tito’s Yugoslavia.) Still, Nixon cannot be faulted either for the creation of the crisis or for the consequences that followed from his global intervention.
Rather does it appear that the “crisis” was caused by the appearance globally of something that had been in retreat since the beginning of the war in 1939: competition. Since 1939 there had been only one game in town — the United States. Following the war, at the expense of huge sums of American tax dollars, Germany and Japan began rebuilding their economies. And so long as the United States was both the consumer and the producer of the world, without parallel, this was only a win-win investment: Germans and Japanese purchasing US goods and financial instruments and helping therewith to grow the US economy. Eventually, however, Germany’s and Japan’s economies recovered and began to compete against US producers. The effects of their recovery began to be felt in the late 1960s, but were probably muted somewhat by the huge sums the US was spending expanding its military. By 1972, however, global competition was beginning to be felt everywhere: Germany, Japan, and the US. The consequent decline in returns on investment, particularly when pegged against their spectacular performance from 1932 to 1968, struck investors, who almost always think in the short-run, as an unacceptable long-term anomaly. Actually, the anomaly was the long-term rise in returns following the end of the Great Depression. Declining returns under competitive conditions is not the exception, but the rule.
Still, economists largely at the University of Chicago, my alma mater, saw persistent economic sluggishness as an opportunity to press their case for deregulation and privatization of public assets and reduction or complete elimination of public spending on unproductive, inefficient public programs. We would regrow the economy, they argued, by putting money back in the pockets of private investors. President Carter began to heed their calls for change. But it was not until Margaret Thatcher’s and Ronald Reagan’s terms in office that the heart and soul of Fordism were removed and buried.
Of course, since neoliberalism defies every macroeconomic principle ever conceived from Alfred Marshall and Carl Menger all the way to Frank Knight and Jacob Viner and beyond, the policies based on it proved to be an unmitigated disaster. There was almost an immediate transfer of wealth from working families, who use their income to purchase consumer goods, to the increasingly small and increasingly wealthy top 1% of the population who spend their returns purchasing financial instruments. But since deregulation dictated that it would be improper to regulate the soundness of the assets underlying these financial instruments — caveat emptor — and since mark-to-market made it possible to count an asset before it had actually matured — since otherwise investors would have no incentive to part with their capital — it was as though a huge vacuum cleaner had been erected at one end of the economy with global currencies at the other. Since capital was now gauging its value according to a demand that completely by-passed the consumer behavior of working families — investors setting currency values solely according to their demand for capital destined for the very financial instruments whose value they were setting — marginal profits were no longer dependent on the wages or benefits enjoyed by workers and their families, which, of course, began to drop through the floor.
But, again, no one disputes these facts. The dramatic change in regimes of regulation and capital accumulation have had just the results identified here: massive under- and unemployment, the dramatic expansion of the “inferior goods” market and the specialization of markets targeting the top 1%, whose consumption accounts for an every increasing proportion of aggregate demand, but not nearly the volume of demand were the income curve to be flattened. What is disputed, instead, is the metaphysical, quasi-theological insistence that this shift in regulatory regimes is tantamount to a new birth of freedom.
As though he were completely oblivious to the upheavals of the last century in the 1910s and 1930s, or as though he were reading a play-book written for alien beings on another planet, my brilliant scholar friend evidently believes that it should be possible to dramatically drive down or even eliminate the means for living of large segments of the planet and then expect water canons and shock grenades to clean up the mess. Let freedom ring! Or, as though the radically deregulated, privatized, and deinstitutionalized face of the planet were somehow unrelated to dramatic increases in violence, poverty, hunger, disease, and political turmoil.
To note these facts is neither idealistic, nor particularly socialist. But nor is the destruction we are currently witnessing. Rather is this 
destruction the direct and proximate consequence of the very neoliberal economic policies that my brilliant scholar friend holds dear. But why?
As I have already said, my friend is brilliant. But I also fear he is somewhat naive and idealistic, not to mention just a tad lacking in curiosity about actual, real, economic history. At some point, I have no doubt, my friend read some philosophy books. (I have actually discussed these books with him.) I also know that his background and upbringing have mercifully spared him — as it has spared me — any but the most superficial appreciation for how working families struggle to get by. So, no doubt he probably feels that by boldly, “realistically,” advancing hard-nosed economic policies that call for belt-tightening and privatization, he is helping to promote a new birth of freedom. He probably also is sufficiently lacking in familiarity with history that he paints all public institutions with the same “government” brush, without for one moment reflecting on the harsh light this sheds on even the most conservative theories regarding the “rule of law.”
Instead, fixed upon the empty notion of freedom contemplated in Immanuel Kant’s transcendental philosophy (and therein rejecting 6000 years of western philosophical reflection), my friend mistakes the absence of constraint for the presence of freedom, a notion that mistakes vacuity and (literally) a vacuum, where nothing by definition can live, with freedom of choice. This is unfortunate, because I know that my friend is capable of more refined reflection.
Finally, I suspect that he believes that further belt-tightening, further privatization, and further deregulation are enough to address the economic woes of the former Yugoslavia. In this suspicion he is, of course, quite simply delusional. What the former Yugoslavia needs, in the words of another document with which, as a legal scholar, he might be expected to be familiar, is to establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty for its peoples and their posterity. Such, however, is not formed by eliminating government, but by forming a more perfect union ordained and established through and in a workable Constitution.
This is not a return to “dreadful socialist idealism.” Nor is it a return to Marshall Tito’s own version of Fordism. Rather is it an attempt, perhaps for the first time, to put real teeth into the liberty the peoples of the former Yugoslavia so long for and deserve.
here) is on the Chicago School of Economics. Still, as I have been putting this talk together, the unrest in Ukraine, Venezuela, Turkey, and Bosnia and Herzegovina have been calling for my attention; which mostly I have given them. For those readers not familiar with my standard “Chicago School” talk, it begins by situating the Chicago School squarely within the Methodenstreit or methods controversy between the Austrian School and the German Historical School and it ends by noting how “Hegelian” Chicago School economic theory has become over the last half century. By “Hegelian” I mean that, in a manner similar to GWF Hegel, Chicago School economists using rigorous mathematical modeling now describe the global economy as integrated, rational, and uniform (excepting a few remaining outliers), but all moving collectively toward singularity. This is intended to sound ironic — which it is — to anyone familiar with Chicago’s place in the history of economic thought.
as such, is really the ultimate market distortion. Their unsatisfied needs, which markets have not satisfied, nor are very likely to satisfy soon, come with an insistence to which markets are deaf and blind. In Hegel’s language, their needs constitute the particularities that will either have to be folded into the market, into the universal, or violently expelled. Such is the nature of comprehensive, integrated, rational systems such as global capitalism. Such systems necessarily punish the particularities that they cannot assimilate. And, because global capitalism operates on a singular, uniform logic, its tolerance for alternative practical logics is very low — such logics necessarily amount to market distortions, and market distortions are the very things free markets aim to eliminate.
It is, of course, in the latter guise, as divine messengers, that the authorities would most often like to appear. These authorities are only restoring order, and to the extent that they are successful they actually do “reassure markets.” But, both as a resident of Bosnia and Herzegovina for the past six months and as a careful observer of events in Ukraine and Turkey, I can tell you that “the authorities” also hope to continue to push and pull supply and demand curves to their advantage and maintain the market distortions that feed them.
