Politics Advice to my Grandchildren

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A Letter to My Grandchildren When They Are Fifteen

When I was fifteen I listened to contemporary politicians, Wilson and Heath in the 1966 election, berating each other in morally heated terms. I wondered why there wasn't a clear right or wrong answer on these pressing policy matters. I wondered how to decide – what could be the methodology? – between the different parties' positions.

Unlike in the maths or physics I was studying, no one seemed to have a good theory.

Eventually – and after I learned some economics – I came to understand. Politics is not what it pretends to be: a search for correct answers as to how to run things (in the scientific sense). Not at all. It’s actually a system for distributing power between powerful people who represent conflicting interests, under conditions of uncertainty and limited knowledge - and varying degrees of competence, we might add.

Let’s listen to the economist Joseph Schumpeter (1883–1950): democracy is not the rule of “the people” discovering the common good. Instead it’s a competition between political groupings, usually organised as parties, for the right to govern (see Capitalism, Socialism and Democracy, 1942). Elections are not moments of truth or attempts to achieve generalised optimality; they are moments of selection. You are choosing only between elite teams representing diverse interest groups.

Finally, the tone of political debate begins to make sense. Each side is not calmly reasoning toward a shared conclusion. Each side is attempting to win by mobilising its supporters while undermining its opponents. Moral language is part of the toolkit, galvanising ‘us’ and demonising ‘them’.

Incidentally, this is why the famous GOAT, the ‘Government of All the Talents’ is a non-starter except in times of national emergency - when domestic factional struggles get to be put on hold.

The Machinery Beneath the Stage

It’s after the election when Public Choice Theory intervenes to provide the next layer of our education. It begins with a simple observation: the people inside political systems – politicians, civil servants, advisers – are not saints or neutral calculators. Like all human beings, they respond to the incentives available to them.

Politicians seek re-election. Bureaucrats seek budget, stability, and expansion of their power and influence. Voters, for the most part, remain only lightly informed because people are busy, the effort required to master public policy is large, and the influence of any individual vote is small to negligible.

Meanwhile, smaller, organised groups – industrial cartels, unions, the professions – have strong incentives to lobby for policies that benefit them... and the power and focus to succeed in doing so.

The result is that government policy tends to reflect the pressure of organised minorities much more than the diffuse interests of the majority (noting that all governments wish to keep the masses politically atomised and quiescent, which is why Populism is deprecated as so dangerous).

This stance is accentuated when the dominant governing ideology is managerialism, with political leaders who pride themselves on lacking any overarching vision, but who are content to triangulate between interest groups, thinking their role is to compute some kind of political vector sum.

How Power Settles and Hardens

Mancur Olson became justifiably famous (The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, 1982) by observing that those elite fractions strong enough to gain real power do not merely exercise it ‘in the moment’; they institutionalise it. They construct legal frameworks, regulatory regimes, and administrative practices that lock in their advantages. What begins as a contingent victory becomes a durable structure.

Each such structure generates beneficiaries, and those beneficiaries organise to defend it. Over time, society accumulates a dense network of such layers incorporating protections, subsidies, rules and exceptional treatment. Each, in the moment, could be justified. Together they form a dense web that becomes increasingly resistant to change – a de facto veto network which locks-in a stagnant status quo.

So this is Olson’s central point: democratic societies tend to become sclerotic. Not because they suddenly become foolish, but because they become crowded with entrenched interests that resist the shock of the new. Reform is not blocked by ignorance so much as conscious, organised opposition.

Machiavelli saw this long before modern economics. He observed that “there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things” (The Prince, 1532).

Those who benefit from the old order resist fiercely; those who might benefit from the (untried and embryonic) new are uncertain, hesitant, or divided. Reform is intrinsically hard, even when it is vitally necessary for the larger society.

Why Change Requires Shock

As the web of special interest groups unfolds over decades, the system slows. It becomes less adaptive, less efficient, more preoccupied with managing its own accumulated complexity; the barriers to change are thus constructed.

Significant reform so often requires a countervailing force of unusual magnitude: economic crisis, political upheaval, war, or the arrival of disruptive technologies that make old arrangements untenable. Olson noted that societies experiencing social collapse, such as Germany and Japan after 1945, often exhibited faster growth in the following decades, partly because entrenched interests had been dismantled in defeat.

Marx, in his own way, grasped part of this dynamic. He spoke of a tension between the “forces of production” and the “relations of production”. When the former advance beyond what the latter can accommodate, strain builds. Something must eventually give. Despite Marx’s legendary revolutionary optimism, it’s far from a quick process.

The Role of the Public

Where does this leave “the people”? Not as sovereign masters in the romantic sense, nor as mere dupes. Most people are busy with their own lives; rationally inattentive to national politics. They rely on heuristics: party labels, reputations, broad impressions of competence or trustworthiness. People become aware in broad outlines when the current set-up is stalled and on a road to nowhere; when their own hopes of fulfilment are being dashed.

Why You Will Not Find a Single “Right Answer”

At fifteen, I wanted a method that would tell me the correct policies, the ones I should support, just like a calculation produces a correct result.

It took me a good few years to comprehend that there are no such methods, because political questions are not of that kind. They always involve trade-offs with winners and losers and everyone fights and obfuscates for their advantage. There is no neutral vantage point from which all interests align, although all parties will pretend the opposite.

So don't look for purity in politics. You will not find it. Look instead for cui bono: who benefits, who pays, who is organised, who is left in the cold. Watch out for bad arguments: specious narratives which make you wonder how anyone could ever believe that - special interests, dressed up in the garb of universal idealism, often look like that.

Hopefully you will see more clearly than I did at your age. You will not be seduced by moral hectoring, self-satisfied self-righteousness. 

Instead, you may take quiet satisfaction in looking behind the curtain at those little men and women pulling the levers and pretending to be wizards.

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The failure to create a 'United States of Europe'

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Why Europe Cannot Become a “United States of Europe”

The question is often posed with a note of bafflement, sometimes irritation: in a world that is plainly becoming harsher, more coercive and more dangerous, why does Europe still struggle to act as a single political, economic and military unit? Why, when the logic of scale, deterrence and strategic autonomy seems obvious, does the European Union fail to harden into a true “United States of Europe”?

The short answer is that Europe is not failing to become a superstate by accident. It is behaving exactly as its institutional design, political economy and historical memory would predict. It is also worth recalling that even the United States did not emerge as a coherent federal power by design alone: it required a shared revolutionary origin, a long period of internal bargaining, and ultimately a civil war - which settled the question of sovereignty by force.

The EU as a regulatory state, not a sovereign one

The EU is strongest where coercion is weakest. It excels at rules, standards, market integration, competition law and trade policy. These are domains where authority can be exercised through law, process and courts rather than force. What it conspicuously lacks is a thick fiscal core and a unified coercive apparatus. Its budget is small, its taxation powers negligible, and its ability to borrow jointly remains politically exceptional rather than normal.

States, however, ultimately cohere through money and force. War, deterrence and large-scale redistribution are paid for through taxation and debt, and enforced through command structures that answer to a single political authority. Europe can coordinate, consult and regulate; it struggles to command. This is not an accident.

National sovereignty as an alarm system

The EU’s much-criticised vetoes and unanimity rules are often described as design flaws. In fact they are better understood as sovereignty alarm systems. They exist precisely to prevent national elites from being dragged into commitments - financial, military or constitutional - that they cannot control domestically and which adversely affect their interests.

Under calm conditions, these vetoes look like bureaucratic inertia. Under stress, they become political tripwires. A single election, coalition collapse or captured party system in a medium-sized member state can paralyse collective action. From the perspective of national elites, this is not a bug; it's insurance.

Olson, Schumpeter and the politics of capture

Mancur Olson’s logic of collective action applies with brutal clarity to Europe. Each member state already contains a dense web of special interests: regulated industries, “national champions”, unions, NGOs, quangos and professionalised lobby groups. These actors are highly motivated, well-organised and intensely defensive of their rents.

European integration cannot and does not dissolve this structure; it duplicates it. Some interests lobby Brussels to entrench advantages. Others lobby national governments to block EU initiatives that threaten domestic arrangements. Free-riding is rational, resistance is organised, and the costs of fragmentation are diffused across electorates that rarely mobilise in favour of abstract continental goods and services.

Joseph Schumpeter’s profound insight - that democracy is often a valued enabler of competition between elites rather than an unmediated expression of 'popular will' - only sharpens the point. European publics are not clamouring for a supranational state that taxes them directly, drafts their children or reallocates resources across borders indefinitely. National elites know this, and are happy to leverage such sentiments.

“Integration through crisis” has limits

The architects of European integration were not naïve. They understood that centralisation could only advance incrementally, often under the cover of necessity. Crises could justify new instruments: common rules, emergency funds, shared borrowing. This ratchet worked tolerably well in financial and regulatory domains.

But existential crises cut both ways. They do not merely enable integration; they politicise it. When costs become visible and unevenly distributed - energy prices, industrial decline, migration pressure, military risk - national interests harden. “Solidarity” turns into an argument about who pays, who benefits, and who is cheating.

At that point, the logic of Olson reasserts itself with a vengeance. Blocking becomes profitable. Defection becomes electorally attractive. The centre weakens precisely when it would have needed to harden.

Military power remains national

Despite years of initiatives, Europe does not possess a unified military force with a single chain of command answerable to a European executive. Defence remains national, shaped by deeply different strategic cultures, threat perceptions, historical memories and above all different national interests.

Eastern and northern states see immediate existential danger; southern and western states see instability, energy risk and trade exposure. These are not trivial differences of emphasis; they shape willingness to spend, to escalate, and to accept casualties. A common army without a common political community is both paralysed and dangerous (who in the end gets to direct it?).

The shadow of history

The last attempt to unify Europe under a single authority occurred during the Second World War, and it arrived in the form of conquest, the only way to truly break the power of the elites in the conquered nations. The diverse national elites of today don't see that as a model which works for them: unity imposed through domination, leading to their permanent subordination, is intolerable.

What is more likely than a superstate?

The most plausible future for the EU is neither neat consolidation nor outright collapse, but fragmentation-within-framework. The EU will persist as a powerful economic and regulatory platform. Security and deterrence will increasingly run through NATO if it survives as a functional arrangement, bilateral arrangements and ad hoc coalitions of the willing. Joint action will occur where interests align sharply and visibly; paralysis will return where they do not.

Conclusion

Europe struggles to become a “United States of Europe” because such a state would require what Europe does not yet possess: a unified demos, a thick common treasury, a shared strategic culture, and national political and economic elites willing to surrender veto power over war, money and destiny - that is, over their own vital interests.

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The Feminisation of Society in Mancur Olson’s Political Economy - ChatGPT

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The Feminisation of Society in Mancur Olson’s Political Economy

There is a fundamental tension between Mancur Olson’s public choice analysis of distributional coalitions and the observable shift in modern polities toward what might loosely be called the feminisation of public life: a tendency toward risk-aversion, consensus-seeking, and care-oriented institutional priorities. Let’s see what Olson’s framework, properly extended, might make of it.

1. Olson’s Distributional Coalitions and Institutional Drift

In The Rise and Decline of Nations, Olson's thesis is that over time, stable societies accumulate special-interest groups which hijack political and economic institutions for narrow gain. These coalitions are typically conservative (in the structural, not ideological sense), resistant to innovation, and fiercely protective of their privileges. Olson’s paradigmatic examples were trade unions, professional guilds, and industrial lobbies—hard-nosed, usually male-dominated, and oriented toward rent-extraction.

But there is no principled reason why Olson’s logic would not apply equally to any stable, internally-organising interest group—so long as the group is:

• Relatively small (so can overcome collective action problems),
• Incentivised by selective benefits, and
• Operating in a stable institutional environment where rules can be bent but not broken.

Healthcare bureaucracies, teaching unions, social work professional bodies, and even activist NGOs—especially those with progressive, feminised staffing—meet these criteria. They are, in effect, Olsonian coalitions, though they present themselves under the moral banner of care, equity, and public service.

But as with all distributional coalitions, their internal goal is self-replication and insulation from reform. That they are largely feminised is historically contingent, but structurally irrelevant to Olson's core diagnosis: their function is rent-seeking disguised as moral necessity.

2. Feminisation as Institutional Capture by Soft Coalitions

Olson tended to focus on hard coalitions: dockworkers, steel producers, grain cartels. But late-modern institutions—particularly in the social democratic West—have drifted toward soft coalitions, often composed of civil servants, educators, and healthcare professionals. Their rents are not primarily monetary (though pensions, job security, and work-life balance certainly count), but moral-political: control over discourse, policy priorities, and cultural capital. These coalitions are harder to attack precisely because they cloak their self-interest in moral universalism. They are also, as you note, statistically and temperamentally feminised.

Here’s where your insight bites: the moral economy of these feminised institutions tends toward proceduralism, consensus, and safety. The risk-taking, iconoclastic, and combative Schumpeterian entrepreneur is delegitimised as dangerous, toxic, or disruptive. Even the language shifts: creative destruction becomes unsafe workplace restructuring. Challenge to orthodoxy is recast as violence.

Olson would likely see this feminisation not as some alien force, but as a natural extension of the same entropic process he identified: the proliferation of rent-seeking groups who grow in number, influence, and veto power as institutional inertia increases. The only difference is that the newer coalitions work through soft power, moral suasion, and ideological capture—not strikes, tariffs, and bribes.

3. The Gendered Political Economy of the Welfare State

Postwar welfare states, particularly in Scandinavia, offered a natural bureaucratic home for the expansion of feminised labour. This is not sinister; it was an expression of genuine need and postwar consensus. But as women entered these sectors in increasing numbers, they became politically salient constituencies. And like any political constituency, they organised around their interests: working conditions, job security, ideological consonance (e.g., DEI, safeguarding, trauma awareness, "lived experience" as epistemic trump card). These became new institutional shibboleths—no less opaque or self-serving than the old trade guilds Olson railed against.

Feminist activists, in this context, act as shock troops for institutional capture, pushing for expanded influence of care-values across sectors (education, policing, business, even defence). The result is not a conspiracy, but an emergent equilibrium: institutions become more caring, more cautious, and more administratively swollen—and much harder to reform.

4. Creative Destruction and the Taboo Against Masculine Antagonism

Schumpeter’s entrepreneur is not just masculine in tone; he is politically taboo. He breaks things. He does not consult the feelings of the HR department or check the trauma register of every policy. He cuts through consensus and dismantles legacy structures. No wonder, in a feminised institutional culture, he is reframed as an abuser.

This redefinition is not accidental—it is part of the ideological immune system of feminised coalitions. Olson’s prediction was that as distributional coalitions become entrenched, societies lose their capacity to restructure in the face of external shocks. What feminised coalitions add is an additional psychological armour, in which the very will to restructure is stigmatised.

In effect: feminisation retools Olson’s sclerosis, giving it a velvet glove.

5. Final Provocation: What Breaks the Spell?

Olson believed that only catastrophe—war, collapse, foreign domination—clears the decks. In 1945, Germany and Japan got rebooted. But short of such calamities, feminised rent-seeking institutions are like kudzu: elegant, soft-leaved, and utterly strangling.

Can a society re-masculinise its institutions enough to permit reform? History is not encouraging. And any attempt to do so will be met with moral panic and a fusillade of emotional invective.

So, if Olson were alive today, he would likely see feminisation not as a distinct phenomenon but as a culturally particular instantiation of the same degenerative dynamics he identified: interest groups cloaking rent-seeking in moral legitimacy, slowly calcifying the arteries of economic and institutional renewal.

Whether the hand on the lever is calloused or manicured, it grips the same rent-seeking apparatus. That is Olson’s genius—and his bleakness.

The Martian Economist on Donald Trump

The Martian Economist views events on planet Earth from a lofty height, refusing to take sides in parochial, tribal mud-slinging. This alien intellectual is - broadly speaking - a follower of Joseph Schumpeter, who they take to be the most persuasive of all Terran economists. At this critical turning point in Earth's history, the Martian presents us with his/her/its views on perspectives (with a little help from ChatGPT).

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The Martian Economist on Donald Trump

A Visual Metaphor for the Past, Present, and Future

A global grid of pulsing light once connected the world - commerce flowing freely from New York to Shanghai, Frankfurt to São Paulo. It was the 1990s, the age of neoliberal triumphalism, and the promise of universal prosperity through open markets seemed within reach. Fast forward a generation: the grid now flickers, fraying at the edges. The engines of globalisation have stalled, weakened by economic contradictions, political backlash, and rising great-power competition. Walls - literal and figurative - divide the world, as revolutionary technologies emerge that could either rebuild the grid or tear it apart entirely. The year is 2025.

Donald Trump’s return to the presidency a few weeks ago is not a historical fluke, nor the mere triumph of personal ambition. It is the product of seismic economic, political, and geopolitical shifts that have accelerated since his first term ended in 2021. These forces - rooted in the failures of neoliberalism, technological disruption, and the fracturing of the global order - demanded a populist, nationalist response, one that Trump was uniquely positioned to deliver.

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Neoliberalism’s Implosion

Over the last two decades, the neoliberal economic order that dominated the post-Cold War period has eroded. The structural weaknesses exposed by the 2008 financial crisis, the uneven recovery of the 2010s, and the faltering response to the COVID-19 pandemic created fertile ground for popular alienation from borderless elites who pocketed the many benefits of globalisation.

The 2016 Brexit vote and Trump’s first term were the harbingers of a broader shift toward deglobalisation. Trade wars, the reshoring of manufacturing in response to perceived security-of-supply threats, and geopolitical instability, all began to unravel the global economic system. By the 2020s, the pandemic’s exposure of intrinsic supply-chain fragilities and rising tensions between the U.S. and China cemented this trend. 

The Biden administration attempted progressive economic reforms, temporarily stabilising some constituencies, but these efforts failed to resolve the deeper contradictions of the American economy. Wage stagnation persisted, wealth inequality widened, and inflationary pressures eroded the purchasing power of ordinary Americans.

And then there were the culture wars: a near-perpetual conflict over identity and values that sapped any remaining trust in American institutions. By 2024, "drain the swamp" had evolved from a campaign slogan to a grim metaphor for what should be done to the failing state.

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Trump’s Return and a Fractured Global Order

Trump’s 2024 campaign capitalised on this discontent, promising a return to “American greatness” through protectionist policies, border controls, and an unapologetic assertion of transactional national interests. His second term emerges against the backdrop of a far more fragmented world than his first.

The U.S., once the undisputed global hegemon, now faces near-peer competitors in China and a revanchist Russia, as well as a host of regional powers asserting themselves. The unipolar moment is over, and Trump’s foreign policy - bilateralism, transactional diplomacy, and military modernisation - reflects this reality. “Peace through strength” is paired with renewed investment in AI-driven defence technologies, hypersonics, and advanced manufacturing.

China is the foremost challenger. It has matched or surpassed the U.S. in AI, quantum computing, and green energy. Its success stems from a state-capitalist model that combines strategic focus with technological ambition. Yet, the contradictions of its authoritarian system act as a brake on progress: centralisation and censorship stifle the entrepreneurial dynamism necessary for sustained innovation.

Russia, meanwhile, is a declining power with delusions of grandeur. Its strategy of leveraging energy exports to sustain its influence is faltering under Western sanctions and a shifting global energy mix. Internally, demographic decline and economic stagnation amplify its vulnerabilities. Russia’s gamble - expanding its empire westward while drifting into economic and even political subservience to China - looks increasingly like a strategic cul-de-sac.

Elsewhere, the rest of the world remains a sideshow. Europe is in inexorable managed decline, its complacent elites and entrenched vested interests strangling change and stifling growth; regions like Latin America and the Middle East struggle with endemic instability. India, though rising, is not yet cohesive or industrialised enough to play a decisive role in the global balance of power.

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The Domestic Battlefield

Domestically, Trump’s second term inherits a deeply polarised United States, where institutions from Congress to the judiciary are perceived as captured by self-interested elites. Trump’s populist economic agenda promises to revitalise the industrial heartland through protectionism, infrastructure investment, and reshoring. But these policies face significant obstacles: entrenched elites within the state apparatus, fiscal constraints, and inflationary pressures from an already overstretched economy.

The accelerating pace of technological change further complicates matters. AI, automation, and robotics are transforming labour markets, displacing traditional industries while creating new opportunities for the educated elite. The challenge for Trump - or any leader in this moment - is navigating this transition without exacerbating inequality or social unrest, or losing his base.

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The New Arms Race

The 2020s have ushered in an arms race not only in military technology but in economic and ideological competition. AI, quantum computing (potentially, at some point), and hypersonics are at the forefront, reshaping both war and commerce. These technologies are not just tools but arenas of conflict, where leadership confers economic dominance as well as military superiority.

For the U.S., the question is whether Trump’s administration can harness America’s innovative edge to rebuild its economic and strategic primacy, or whether bureaucratic inertia and political dysfunction will squander this advantage. Trump’s “wrecking ball” energy, paired with an operations team capable of executing his vision, may yet reforge America for the next cycle of capitalist development: creative destruction finally unleashed.

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The Path Forward

Trump’s second term represents both a moment of crisis and an opportunity. The global order is undergoing a chaotic transformation, with great-power competition, technological upheaval, and economic realignment reshaping the world. Trump’s transactional approach to diplomacy - while risky - may help deter uncontrolled escalation between the U.S., China, and Russia, while forcing these powers to confront their internal contradictions and hopefully transform themselves to a new global equilibrium.

The stakes are immense. A failure to adapt could plunge the world into protracted conflict, while a successful recalibration could usher in a new era of stability and growth. This is the crucible where the next stage of human development will be forged - or destroyed.

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Cheer up! Better times are on the way

From Amazon

Introduction

The theory of long cycles - first identified by Nikolai Kondratiev and later refined by Joseph Schumpeter - proposes that capitalist economies undergo long waves of growth and renewal, spanning 40-60 years. 

These cycles are kicked off by periods of innovation, followed by economic expansion - but eventually stagnation and decline set in, as existing technologies mature and productivity gains dwindle.

The first Kondratiev wave, the Industrial Revolution (circa 1780–1830), introduced mechanised production in textiles, iron, and water power, catalysing industrial growth and urbanisation.

The Age of Steam and Railways (1830–1880) followed, marked by steam power and extensive rail networks, creating national markets and driving economic expansion.

The third wave, the Age of Steel, Electricity, and Heavy Engineering (1880–1930), brought advancements in steel, electricity, chemicals, and the internal combustion engine, fostering new industries like automotive and chemical manufacturing.

The Age of Oil, Automobiles, and Mass Production (1930–1970) then transformed society through petroleum-fueled growth, automobiles, and consumer-oriented mass production, ushering in widespread prosperity post-WWII.

Finally, the Information and Digital Age (1970–present) has redefined economies with computing, the internet, and digital communication, creating an interconnected, information-driven world.

Now, we are entering a sixth wave led by AI, biotech, robotics, and green energy.

Our current period of economic slowdown is, therefore, not an anomaly. We are living through the tail end of the fifth long wave, which began with the information and digital revolution of the 1970s and 1980s. Its initial explosive productivity has long gone, leaving us mired in the ensuing "Long Stagnation".

But that is about to change.

The Cycle of Disruption and Rebirth

Long cycles do not begin smoothly; they are born out of upheaval. 

Schumpeter referred to this as “creative destruction” - a period when old industries, ways of working, and social structures are uprooted to make way for new, more efficient ones. Historically, each new wave brings disruption that manifests as political resistance, temporary labour displacement, social restructuring, and financial volatility.

These challenges are not unique to the coming cycle; they were seen in all the major economic transformations. Steam power in the 19th century led to the mechanisation of labour and the rise of cities. More recently the spread of electricity and assembly lines in the early 20th century saw society adapt to large-scale industrialization - eventually bringing prosperity to unprecedented numbers of people.

Emerging Technologies Drive Growth

Technological advancements in AI, robotics, biotech, and sustainable energy are not merely incremental improvements - they represent transformative shifts:

• Artificial Intelligence will drive efficiency gains in manufacturing, logistics, healthcare, and finance.
• Biotechnology will transform personalised medicine, gene editing, and sustainable agriculture.
• Robotics and Automation will enhance pretty much every industry it touches.
• Sustainable Energy Technology, (renewables and energy storage) decouples growth from environmental degradation, improving the quality of life.

The Timeline for Prosperity

The initial, disruptive phase of this new cycle will advance to prosperity in roughly a decade as these technologies mature and integrate into the economy, creating dramatic efficiencies and driving growth.

During the early 2030s, expect accelerated adoption as infrastructure, expertise, and regulatory frameworks catch up.

This will culminate in a long period of stable growth in the 2040s, comparable to the post-WWII economic boom.

The Dawn of a New Cycle

The Long Stagnation has seen political volatility as cohorts of university educated young people have failed to achieve the futures their education appeared to promise them. Meanwhile, for most people, personal incomes have not advanced in decades, and the future looks bleak. No wonder they're cynical and angry.

Politically, the veto networks of established interests have conspired to block off hopes of change. Yet these new economic forces will not be forestalled. Through political turmoil new leaders and parties are unjamming the process.

How ironic if the self-styled Progressives are now the reactionary ones, wedded as they are to their static and lifeless equilibrium models which serve only to justify their privileges. Meanwhile the so-called Conservatives, riding the waves of change, are the real revolutionaries, the motors of progress going forward!

'Schumpeter' on Robotics and the Labour Theory of Value

From Amazon

I spent a significant number of years contemplating Marx's version of the Labour Theory of Value, recognising its attraction as the source of what we're able to bring to market (subject to rents of course, such as found things).

And yet: Marx himself indicates that value is not a property of a commodity but an abstract social relationship, established under highly idealised circumstances, in general market transactions. In practice value is not observable, so how can it be causal?

I discovered Joseph Schumpeter's masterly explication and critique of Marx's economic and sociological ideas very late. But that's better than never; with ChatGPT I can actually chat with the master economist himself. Note that our lives did not overlap.

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Exploring Marx and Value Theory: A Conversation with Joseph Schumpeter (ChatGPT)

This is a reconstructed dialogue between myself and the economist "Joseph Schumpeter" (1883–1950), inspired by his seminal work Capitalism, Socialism, and Democracy. In this hypothetical exchange, we use Schumpeter's perspective to explore complex topics such as Marx's labour theory of value and the notion of "social surplus product" within capitalist systems. The aim is to shed light on the unique ways that Marx and Schumpeter approached questions of value and economic growth—and to consider how these ideas might apply to a world of increasing automation.

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Me: So, Joe, I know you’re not fully on board with Marx’s labour theory of value. But how do you feel about the broader idea of the social surplus product?

Schumpeter: Ah, an excellent question! While I certainly take issue with Marx’s labour theory of value as a strict framework, I’m more receptive to the concept of a social surplus product. Marx rightly recognized that societies generate a surplus beyond basic subsistence needs, and this surplus becomes the fuel for investment, growth, and—crucially—innovation.

But here’s where I differ. Marx viewed this surplus as a tool of exploitation, a force driving capitalism toward collapse and class conflict. I, on the other hand, see it as the engine of capitalism’s unique adaptability. In capitalism, this surplus isn’t just appropriated by the capitalist class but reinvested, spurring cycles of what I call “creative destruction.” Capitalism, through this cycle, continually evolves, creating new industries and wealth.

So yes, I find the social surplus concept useful, but I see it as a catalyst for capitalism’s evolution, not its inevitable downfall.

Me: To be fair, you have yourself acknowledged that Marx also emphasised that capitalists are driven to reinvest their appropriated wealth. But on another topic, do you think, then, that Marx was guilty of what we might call “vitalism”? I mean, what would happen to his model if we replaced human workers with equally capable robots who perform all productive labour and maintain themselves? If these robots earned a “wage” to cover their self-maintenance costs, then like any other form of constant capital wouldn’t Marx’s framework imply that no new value could ever be created, even though production continues in all other respects unchanged?

Schumpeter: Ah, yes, this is an insightful question! In a sense, Marx’s model does seem bound to something resembling vitalism. By his account, only human labour can create new value because, for him, human labour uniquely adds surplus value in production. If we replaced workers with robots, who would merely be another form of "constant capital", his model would suggest that no value is generated—only transferred.

This creates a dilemma. The productive process, as you note, remains the same; the output is identical, and profit still exists. So, has anything truly changed?

I would argue that this scenario points to a limitation in Marx’s framework. He insists on tying value creation exclusively to human labour, almost as if labour contained an "animating spirit." It’s as though Marx was implicitly holding onto a vitalistic view of labour, which limits the applicability of his theory in an age where machines increasingly perform complex labour.

Me: So, from your perspective, value creation doesn’t require a human “animating spirit.”

Schumpeter: Precisely. From my perspective, value creation lies in the productive function rather than in human effort alone. Imagine a fully automated system, where robots both maintain themselves and perform all productive tasks. Such a system could indeed generate value—not because of some mysterious property of human labour, but due to its efficient organisation and minimal input costs.

This interpretation sees value not as a product of human labour alone but as an outcome of productive efficiency and innovation. Marx’s model is restricted by this vitalistic assumption, limiting its usefulness in a world that increasingly relies on automation and artificial intelligence.

Me: I read your book, "Capitalism, Socialism and Democracy" with great interest. It's a true tour-de-force: visionary, objective, not at all tribal and steeped in your vast expertise in history, economics and politics. Eighty two years later, I am most struck by your pessimism about capitalism's lack of enduring vitality, and by your misplaced faith in the power of so-called 'rational bureaucracy' to get things done. The collapse of the Soviet model and much else shows how effectively bureaucracy without competition kills progress and allows institutions to be captured by their own elites - to the detriment of wider societal interests. So how would you reappraise the prospects of the future of capitalism if you were writing today?

Schumpeter: When I wrote my book, my central argument was that capitalism’s greatest strength—its capacity for creative destruction—would also sow the seeds of its eventual decline. By relentlessly revolutionizing the means of production, capitalism disrupts not only markets but also the cultural and social fabric that supports its institutions. Over time, I predicted, capitalism would erode the entrepreneurial spirit that made it dynamic, replacing it with a class of managers and bureaucrats who, while efficient, lack the visionary energy to sustain perpetual innovation.

Now, in hindsight, I see that I underestimated the resilience of entrepreneurial capitalism, particularly when tied to democratic institutions and bolstered by global competition. The collapse of the Soviet Union and the stagnation of centralized economies underscore how essential competition and private incentives are to innovation. Bureaucracy alone, far from being a neutral executor of rational plans, often succumbs to sclerosis, inefficiency, and elite capture. The lessons of Kornai’s 'The Socialist System'—a work I would eagerly reference today—make clear how central planning inherently breeds shortages, inefficiency, and corruption due to its structural inability to adapt to complex, dynamic markets.

You are correct that I overestimated the efficacy of rational bureaucracy. My optimism was rooted in the idea that a bureaucratic structure could, at its best, implement policies consistently and rationally. However, what I underestimated—what history has since made painfully clear—is that without the competitive pressures of the market, bureaucracies lack both the incentive and the feedback mechanisms necessary to innovate and respond effectively to change. Instead, they protect their own existence and entrench their elites. This tendency is not limited to socialist states; even in capitalist democracies, public institutions often suffer from a similar ossification, as seen in the inefficiencies of large welfare states and regulatory bodies.

Finally, a word on capitalism’s potential future adversary. If socialism as envisioned by Marx and Lenin is now discredited, a new form of bureaucratic corporatism or "managerialism" may well take its place. The threat to capitalism today lies not in revolutionary upheaval but in the creeping expansion of non-competitive structures—be they state bureaucracies or monopolistic corporations—that stifle innovation and dynamism. The battle for the future, then, is not between capitalism and socialism but between innovation and stagnation, competition and rent-seeking.

"The Vanishing of Investment Opportunity" - Schumpeter

From Amazon

“The present generation of economists has witnessed not only a world-wide depression of unusual severity and duration but also a subsequent period of halting and unsatisfactory recovery. 

"I have already submitted my own interpretation of these phenomena and stated the reasons why I do not think that they necessarily indicate a break in the trend of capitalist evolution.

"But it is natural that many if not most of my fellow economists should take a different view.

"As a matter of fact they feel, exactly as some of their predecessors felt between 1873 and 1896 - though then this opinion was mainly confined to Europe - that a fundamental change is upon the capitalist process.

"According to this view, we have been witnessing not merely a depression and a bad recovery, accentuated perhaps by anti-capitalist policies, but the symptoms of a permanent loss of vitality which must be expected to go on … .” 

(Page 111 of 407).

This was written in 1942. Les Trente Glorieuses were about to transform the world in a new cycle of robust capitalist growth in the 1950s and 60s. Schumpeter's prescience in opposing doom and gloom was based on his evolutionary idea of capitalist development, leveraging the theory of long cycles first identified by Nikolai Kondratiev.

I shall have more to say next week on this, but here is a preview:

"Now, we are entering a sixth wave led by AI, biotech, robotics, and green energy.

"Our current period of economic slowdown is, therefore, not an anomaly. We are living through the tail end of the fifth long wave, which began with the information and digital revolution of the 1970s and 1980s. Its initial explosive productivity has long gone, leaving us mired in the ensuing "Long Stagnation".

"But that is about to change."