Been there, done that.

The Marxist at UBS and His Confusion

George Magnus, Senior Economic Adviser at UBS is a Marxist. FT has given him space to write an article which includes such gems as:

Marx analysed and explained insightfully how and why capitalism would succumb to recurrent crises, and especially big ones after a credit bust.

Let's be clear about a few things. The current financial crisis was caused by the on again, off again, money printing by central banks, such as the Federal Reserve.

Austrian business cycle theory fully explains the crises. Indeed, if one understood ABCT, you could have seen the current crisis coming in real time. (See here, here, here, here,here, here, here and here.)

Marx theories were a combination of bad economics, mixed with bad political theory, all wrapped with a Hollywood happy ending:

...in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, shepherd or critic.

As far as Marx's so called forecast of the crumbling of capitalism. He saw it first developing by the proletariat taking political control. In the Communist Manifesto, Marx and Frederick Engels wrote (My emphasis):

We have seen above, that the first step in the revolution by the working class, is to raise the proletariat to the position of ruling as to win the battle of democracy. The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, ie, of the proletariat organised as the ruling class, and to increase the total production of forces as rapidly as possible.

Once the proletariat is in charge Marx/Engels see 10 steps the proletariat should generally implement to put the world on the road to bliss, including, as first steps, a graduated income tax and a central bank:

Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

Thus, the Federal Reserve can be seen as Marxist-lite. The quantity of credit in the economy is controlled by the Fed (via control of the money suuply), but the recipients of the credit are not as directed by the Fed. But it is the contol of the quantity of credit that results in the business cycle, as money supply is first increased and then the money growth is slowed or stopped entirely.

In other words, it is the Marxian notion of a central bank controlling credit activities that is at the heart of the Fed. And these central bank activities are what cause the business cycle. So to Marxists like Magnus who claim capitalism is failing and that "Marx-is-relevant school", the response should be, "Yeah, we know what Marxist central banking is all about. It's not capitalism. It's government control. Further we have been there, done that with the Fed and it sucks."