Capitalism-and-Its-Critics-A-History-From-the

Robinson was steadily becoming more skeptical of orthodox economic methods and their applicability to modern reality. In an insightful 2022 article on Robinson’s 1942 Essay, the University College London economist Carolina Alves, who was formerly the Joan Robinson Research Fellow in Heterodox Economics at Cambridge, noted: “Marxian economics gave Robinson the insights and motivation she needed to move away from Marshallian economics and closer to a more classical approach.”27 This shift was evident in other articles that Robinson wrote. In “Control of Monopoly,” a 1943 piece, she pointed out how monopolistic businesses were keeping prices too high, restricting their spending on capital investments, and blocking the introduction of new technologies.28 The same year, she published a pamphlet entitled Private Enterprise or Public Control, in which she called for the establishment of a National Investment Board to mobilize capital investment throughout the economy in accordance with a comprehensive national plan.29 Robinson also called for the public takeover of large firms that didn’t have any competition, such as utilities. At one point, she seemed to advocate nationalization of the entire industrial sector, but she didn’t adopt this position consistently.30

Her central point, which echoed some of the more subversive passages of The General Theory, was that leaving the volume and direction of capital accumulation to the private sector was no longer a viable option. The rise of modern science had changed the nature of industrial innovation, she insisted, turning it into a collective endeavor that required state support. “The age of bright ideas is already gone,” she wrote. “The modern scientist works as one of a team in an expensively equipped laboratory … Under a planned system scientists and technicians, given adequate facilities, would supply a superabundance of new discoveries.”31 In this way, as in others, history was overtaking the free market model of capitalist enterprise, Robinson argued.

In Britain’s wartime economy, that certainly seemed to be true, but after the war ended, the switch to comprehensive economic planning and socialization of capital investment that Robinson advocated for didn’t happen—or not in the way that she had hoped for. In the United States, government support for scientific research was largely funneled through an expanding defense budget. In Britain, the postwar Labour government, even as it nationalized about a fifth of the industrial sector, left the majority of investment decisions to the private sector. And the capital budgets of the newly nationalized industries were often restricted because of concerns about the public finances.

To Robinson’s dismay, Attlee’s Labour government also adopted a staunchly anti-Communist policy, supporting the formation of NATO to contain Stalin’s Soviet Union, which had occupied parts of eastern Europe, and also, following the US use of atomic bombs against Japan at the end of the Second World War, successfully testing its own nukes. By the early 1950s, Robinson was increasingly disillusioned. In 1951, an undergraduate magazine at Cambridge asked her to contribute an “economist’s view” of the international situation. In Korea, which had been divided into Sovietand US-supported zones, an East-West proxy war had begun, and the United States had sent men and matériel to defend its South Korean ally. Robinson agreed to write an article, which was typically direct and forthright. “The great question which overshadows everything,” she wrote, “is whether Russia is planning aggression, for, if not, our whole policy is nonsensical.”32 The commonly drawn analogy between Stalin and Hitler “seems to me to be totally false,” she went on. “The Russians have none of the economic motives for aggression that Hitler had. They have any amount of Lebensraum and untapped natural resources to develop.” What is more, Robinson added, Russia, unlike Germany after World War I, didn’t have “a humiliating defeat to live down.” Thus, she concluded: “I cannot see any objective reason why the Russians should be aggressive, and the main danger from them, I feel, is that our own sabre rattling (and atom-bombrattling) will terrify them into violence.”33

Echoing Paul Sweezy, Robinson also emphasized the economic consequences of the rising Pentagon budget. Between 1948 and 1951, the US Congress had approved big increases in defense spending to counter the perceived threat from Communism. Subsequently, US growth had accelerated, and the unemployment rate had fallen sharply—to just 3.1 percent in August 1951.34 “The great boom in America built up on rearmament has gone too far for comfort  … and yet the prospect of a peaceful détente and a sudden cessation of rearmament expenditure is a menace to their economy,” Robinson wrote. Her point was that sustained federal spending was necessary to keep the economy growing, and that, given the difficulty in getting political agreement for increases in nondefense spending, the path of least resistance was rising defense budgets and international confrontation: “That is what seems to me the biggest menace in the present situation.”35

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Robinson’s book on imperfect competition and her role in the Keynesian revolution had turned her into a widely respected scholar. During the 1950s and ’60s, however, she became involved in a bitter transatlantic dispute that brought her into conflict with some of America’s leading economists. On one level, “the Cambridge capital controversy,” as it came to be known, was a recondite theoretical dispute about the nature of physical capital. To Robinson, however, it was ultimately about the ways in which economic orthodoxy was used to rationalize existing economic arrangements.

The theoretical origins of the set-to can be traced to 1939, when Roy Harrod, the Oxford economist who had first met Keynes seventeen years earlier, published an article in which he sought to extend the analytical framework of The General Theory to long-term growth. Using a deceptively simple model, Harrod demonstrated that, based on his assumptions, the economy would be permanently on a knife edge between booms and slumps.36 This result rested on one of Keynes’s key insights: in a capitalist economy, decisions to save money and decisions to invest in capital equipment are made by different people, and there is no compelling reason why their actions should balance. Harrod showed how if they didn’t balance, the economy would veer off in one direction or another—into an unsustainable boom or a devastating bust.

In 1948, Harrod published a book extending his analysis. Reviewing the tome, Robinson hailed it as an interesting and important work, albeit one that was “extremely hard to follow.” In some parts of Cambridge, Massachusetts, Harrod’s model (and a similar one derived by Evsey Domar, a Russian-American economist who taught at Harvard) received a cooler reception. One of the skeptics was Robert Solow, a mathematically adept young MIT professor who was a protégé of Paul Samuelson. To Solow, Harrod’s depiction of capitalism as chronically unstable didn’t ring true.

“An expedition from Mars arriving on Earth having read this literature would have expected to find only the wreckage of a capitalism that had shaken itself to pieces long ago,” he later recounted. “Economic history was indeed a record of fluctuations as well as growth, but most business cycles seemed to be self-limiting. Sustained, though disturbed growth was not a rarity.”37

After studying Harrod’s model, Solow concluded that the instability result hinged on an assumption that technology was of a particularly restrictive type, with no possibility of substituting capital for labor—by, for example, employing two machines and ten workers instead of one machine and twenty workers. In a 1956 paper, Solow demonstrated that if technology was more flexible, the knife-edge problem would disappear. To show this, he utilized a “production function”—a mathematical equation summarizing the production possibilities of the economy—that allowed practically unlimited substitution of inputs. By combining this equation with a national income identity and the assumption that markets were competitive, Solow was able to construct a model economy that exhibited steady growth, with output, capital, and labor (measured in efficiency units) all growing at the same rate over the long run. “The system can adjust to any given rate of growth of the labor force,” he wrote, “and eventually approach a state of steady proportional expansion.”38

Today the Solow growth model features prominently in textbooks on macroeconomics. Robinson wasn’t having any of it. Even before Solow published his 1956 paper, she had written an article in which she described the very concept of a production function as “a powerful instrument of miseducation.”39 Explaining her point with the aid of some simple algebra, she wrote:

The student of economic theory is taught to write O = f(L, C) where L is a quantity of labour, C a quantity of capital and O a rate of output of commodities. He is instructed to assume all workers alike and to measure L in man-hours of labour; he is told something about the index-number problem involved in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units C is measured. Before ever he does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.

In 1956 Robinson published her own book on growth, The Accumulation of Capital, the title of which she borrowed from Rosa Luxemburg. (In 1951, Robinson had contributed a complimentary introduction to a new edition of Luxemburg’s 1913 treatise.)40 Eschewing the neoclassical methods favored by Solow and his colleagues, Robinson’s book developed a theory of economic growth in which the level of capital investment was determined by the profit rate, which in turn depended on the class struggle between capital and labor over wages and profits. (In some ways, this formulation evoked the earlier work of Michał Kalecki.) Unlike the Solow model, the dynamics of Robinson’s economy were neither predetermined nor self-stabilizing. The outcome depended on institutional forces, expectations, and history.

The intellectual battle was on. On the British side, Robinson and her colleague Nicholas “Nicky” Kaldor were the commanding generals, aided by a timely intervention from Sraffa, who in 1960 finally unveiled an antineoclassical treatise he had been working on for decades: The Production of Commodities by Means of Other Commodities. Solow and Samuelson led the Cambridge, Massachusetts, battalion, which recruited some orthodox British economists to its ranks. Roughly speaking, the first half of the conflict was taken up with arguments about the nature of physical capital and whether it was legitimate to aggregate it into a single whole for theoretical and empirical purposes, as Solow and other neoclassical economists did routinely. The second stage of the conflict was even more abstruse: it centered on whether, as the neoclassical model assumed, there is a strict one-way relationship between capital intensity (the amount of capital equipment per worker) and the rate of profit, or interest.

Obscure as the entire dispute may seem, it revolved around some fundamental methodological differences. Solow, Samuelson, and their allies regarded themselves as scientific pragmatists who were using the latest technical tools available, imperfect as they have been, to understand and regulate the economy: they believed they were living up to Keynes’s dictum that in the future economists should be like dentists. Robinson, on the other hand, thought the American Keynesians were ignoring the central message of The General Theory, which was that the task of directing productive investment couldn’t be left to a capitalist casino. She also viewed the use of production functions as an underhanded effort to rehabilitate J. B. Clark’s argument that wages and profits reflected the productive contributions of labor and capital, rather than the outcome of a class struggle over the economic surplus that was mediated through specific historical circumstances and institutional structures. Generally speaking, Robinson believed that even though many of her opponents identified as Keynesians, their neoclassical version of the creed served to obfuscate the true nature of capitalism. She was determined to fight them tooth and nail.

Throughout much of the lengthy controversy, Robinson kept up a barbed correspondence with Solow and Samuelson. “I should like to say that I think your comments on my paper are a complete red herring,” Solow wrote to Robinson in May 1962.41 Robinson replied: “Dear Bob, To me you are a fascinating study:—A clever man who cannot see a simple point. I suppose to you I am just a dense woman. But we have made some progress if you now agree that your model requires the wage bargain to be made in real terms. Yours sincerely, Joan.”42 Throughout the 1960s, the back-andforth continued, often occasioned by the appearance of a new paper or lecture. Eventually both sides lost patience with each other. “I write only out of sheer old-world politeness. Please let us stop this nonsense,” Solow wrote in a May 1971 missive.43 Robinson replied: “I agree that it is hopeless so goodbye. Yours, Joan.”44

If we look back at the saga, it’s evident that the Cambridge, UK, side won some significant theoretical victories, especially after it recruited a cadre of mathematical economists, some of Italian extraction, to play the MIT professors at their own game. Samuelson eventually conceded that the aggregate production function was merely a “parable” and that, in some cases, the one-way relationship between capital intensity and profit rates broke down—the phenomenon known as “reswitching.” In practical terms, however, Team Cambridge, USA, emerged triumphant. Robinson and her colleagues failed in their goal to displace the production function, and the theories that relied on it, from their central place in the economics canon. The rival models that she, Kaldor, and others devised lived on mainly in the subfield of “post-Keynesian economics.” Orthodox economists relegated them to the status of heterodoxy and largely ignored them.

One reason for this outcome was that Solow’s approach to economic growth proved amenable to empirical analysis and yielded interesting results. In a 1957 paper, he fitted his growth equation to aggregate US data for GNP, labor inputs, and a measure of the capital stock for the period from 1909 to 1949, a period in which GNP per hour had more than doubled.45 His statistical analysis found that growth in capital inputs accounted for only a fraction of this rise—12.5 percent of it, to be precise. Technical progress accounted for the other 87.5 percent.46 At first glance, these findings seemed to suggest that both capital accumulation and the class struggle between capital and labor were something of a sideshow in economic development: the main driving force was technology.

Over time, Solow’s “growth accounting” methodology came to play a central role in empirical and policy debates about economic growth. Attributing Team MIT’s victory entirely to its superior empirics may be a mistake, however. In the early 1970s, Anwar Shaikh, a Pakistani American economist who was then a graduate student at Columbia University, showed that Solow’s neoclassical production function was essentially an accounting identity—a mathematical relationship that is true by definition—and could be fitted to virtually any set of data points for capital per capita and output per capita, including one that spelled out the world humbug when plotted on a graph.47 Despite this unnerving result, Shaikh’s article on “The Humbug Production Function” didn’t have much impact on the economics profession an indication, perhaps, that larger issues than statistical explanatory power were at play during the long-running capital controversy.

Robinson surely believed this. In her mind, the resurgence of neoclassical macroeconomics, including Samuelson’s mechanical interpretation of The General Theory as well as Solow’s growth theory, couldn’t be separated from US capitalism’s rise to global dominance. From the early 1960s onward, she took to referring to her neoclassical opponents as “bastard Keynesians.”48 According to Marjorie S. Turner, the author of the 1989 book Joan Robinson and the Americans, Robinson first used this term in print in a 1962 review of a book by the Canadian economist Harry Johnson on trade and economic growth. Subsequently, Turner noted, “Robinson used the term ‘bastard Keynesian’ freely, not limiting it to Americans.”49 In fact, she applied it to practically any economist who adopted the neoclassical methodology, or who believed that using the levers of fiscal and monetary policy to prop up demand was sufficient to fix the contradictions in capitalism that Keynes had identified. In a 1976 lecture at Barnard College, she said that Keynes and Kalecki diagnosed “an inherent defect in the laisser-faire system but the bastard Keynesians turned the argument back into being a defence of laisser-faire, provided that just one blemish was going to be removed.”50 In an article the following year, she complained: “The bastard Keynesian doctrine, evolved in the United States, invaded the economics faculties of the world, floating on the wings of the almighty dollar. (It established itself even amongst intellectuals in the socalled developing countries, who have reason enough to know better.)”51

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One possible interpretation of the battle between the two Cambridges is that no single theory can explain every aspect of economic development. In examining why countries like Germany and France were able to grow rapidly in the postwar years, or why Japan and South Korea did so well, the Solow model is useful because it shows how countries that have ready access to technology but have fallen behind the countries at the technology frontier can catch up rapidly. The post-Keynesian models, including the Harrod-Domar model and its modern variants, are useful for explaining the economic challenges facing both poor countries, which don’t have enough savings to finance large-scale capital investments, and advanced countries operating at the technology frontier, such as the United States.

Robinson didn’t see the Cambridge Capital Controversy in these terms. She believed it was ultimately an ideological contest. As it dragged on, she continued to engage in broader debates about the progress of what the French demographer Jean Fourastié would label Les Trente Glorieuses. In 1957 Harold Macmillan, the Conservative prime minister, issued his famous remark: “Most of our people have never had it so good.” Five years later President John F. Kennedy declared in the 1962 Economic Report of the President, “The record of the economy since 1946 is a vast improvement over the prolonged mass unemployment of the 1930’s.”52 The report was prepared by the Council of Economic Advisers, whose chairman, Walter Heller, taught at the University of Minnesota. Heller and his colleagues outlined “a three-part program for sustained prosperity” that was avowedly Keynesian. It consisted of temporary income tax reductions, an expansion in federal capital expenditures, and a strengthening of the unemployment insurance system. “These three measures will enable the

Government to counter swings in business activity more promptly and more powerfully than ever before,” the report confidently asserted.53

The postwar economic record also colored Robinson’s views, but she interpreted it very differently from Heller and other optimists. In a 1962 article entitled “Latter-Day Capitalism,” which appeared in New Left Review, a journal published in London, she noted that in 1944, when the Beveridge Report had issued its commitment to full employment, it would have “seemed Utopian” to imagine the unemployment rate averaging 3 percent year to year. In fact, the rate had barely touched 2 percent since the war ended. “Whatever our present discontents, this is by no means to be despised,” Robinson wrote. “… But however thankful we should be for these blessings, it is too soon to claim that full employment vindicates latter-day capitalism. First of all we must ask how it has been achieved.”54

Robinson went on to reemphasize the role military expenditures had played in propping up aggregate demand. In the United States, she pointed out, defense spending accounted for nearly 10 percent of GDP and about 60 percent of gross investment. “Whatever might have been, in fact Keynesian prosperity has been a by-product of the Cold War,” she wrote.55 In her 1962 book Economic Philosophy, which presented a short, sharp history of economic doctrines, Robinson made a related argument, saying that building weapons systems had turned into a substitute for Keynes’s semiironic proposal in The General Theory for governments to deliberately engage in wasteful spending, as the ancient Egyptians did when they built the pyramids. “Nowadays the paradoxes”—in Keynesianism—“are taken in sober earnest and building weapons that become obsolete faster than they can be constructed has turned out far better than pyramids ever did to keep up profit without adding to wealth,” Robinson wrote. “The relapse on Wall Street that follows any symptom of relaxation in the Cold War is a clear demonstration of the correctness of Keynes’s theory, but also a demonstration of the falsity of his optimistic view that, when the theory was understood, reason would prevail.”56

The sustainability of the postwar boom was far from obvious to Robinson. In one of her essays, she brought up Rosa Luxemburg’s argument that capitalism could only survive by expanding into new territories. In an age of decolonization, when the rise of state socialism in the Soviet Union and China had closed off a substantial part of the world to capitalist incursions, the system was facing new challenges, Robinson argued in a 1961 essay published in Monthly Review. “Nineteenth century capitalism was an expanding system in the literal sense,” she wrote. “It did not have to keep itself suspended by the bootstraps of its inner dynamism; it had its feet planted on new lands to be peopled, full of natural wealth to be exploited. There is much force in Rosa Luxemburg’s prediction that when capitalism can no longer expand geographically it will not know what to do with itself.”57

In the United States, Robinson wrote in the same essay, the annual growth rate of inflation-adjusted GDP had already slowed to about 2 percent, well below the potential growth rate that economists estimated on the basis of growth in the labor supply and productivity. “At each recovery from a mild recession, the gap between the best realized performance and the potential grows greater,” she noted.58 In the United Kingdom, she saw a different challenge emerging, one that Kalecki had predicted in the 1940s: a political business cycle, in which interest rates were raised in response to industrialists’ claims that, because of full employment, the workers were getting “out of hand.”59 Recently, she noted in her New Left Review article, the “Economist newspaper, and several professors, have often argued for the greater ‘flexibility’ that would be introduced into the economy by a little more unemployment.”60 The conservative backlash was in train.

All of these concerns related to the question of whether Keynesianism could deliver on its promise to deliver sustained economic growth and banish the mass unemployment of the 1930s. But Robinson insisted there was another issue to be considered, an even deeper one: “Whether capitalism, even when prosperous, can provide us with what we really want.”61 To live a fulfilling life, she pointed out, people needed decent housing, reliable healthcare, and a good education, but “growing wealth always leaves us with a greater deficiency in just those things.” This was no accident, she insisted: it came down to economics and profits. “Capitalist industry is dazzlingly efficient at producing goods to be sold in the shops, and, directly or indirectly, profits are derived from selling,” she wrote in her New Left Review piece. “The services to meet basic human needs do not lend themselves to mass production: they are not an easy field for making profits, especially as, with our egalitarian democratic notions, they have to be offered irrespective of means to pay. Consequently, they must be largely provided through taxation.” Given the opposition of businesses and wealthy people to paying higher taxes, this created a serious problem. “To supply goods is a source of profit, but to supply services is a ‘burden upon industry.’ It is for this reason that when, as a nation, ‘we have never had it so good,’ we find that we ‘cannot afford’ just what we most need.”62