Fred L Block, Capitalism. The Future of an Illusion. Oakland, Cal: University of California Press 2018 describes capitalism as an illusion: the understanding of capitalism as a closed system, self-regulated and self-propelling, following its own laws and logic superior to politics. The illusion leads to the mistake of believing politics should refrain from intervening in the economy in a way that contradicts the laws that are supposed to drive it, laws analogous to the laws of nature. 

In a recent short book, Thomas Piketty underpins Block’s argument: Nature, Culture, and Inequality: A Comparative and Historical Perspective. London: Scrib 2024. He challenges the idea that there could be natural inequalities, whether referred to some market logic or not. Inequalities result from power relationships, political and social struggles, and ideological beliefs. Piketty has already demonstrated the ideological dimension of economic theory in Capital in the Twenty-First Century and texts. 

Fred Block’s opening argument is that both elites and the wider public have come to believe that “given the nature of capitalism, all that can be done to stimulate growth is to balance government budget…” Reform proposals about the political possibilities of redistributive interventions in the economy are rejected as “incompatible with the nature of capitalism” (8). He talks of cognitive power and the capture of the mind through what is called the market, which is nothing but a figment of the brain, a fiction, an illusion. The Market, capitalism, the economy, whatever it is called, and the written and unwritten rules surrounding it are a seducing ideology produced and driven by financial operators and their academic subservient scribes with tight ties to political elites. 

The prelude can easily be mistaken for a conspiracy theory, but this is not Block’s path. On the contrary, throughout the book, he builds his argument on convincing empirical ground. The Market, Capitalism, and the Economy are smokescreens hiding the power pretensions of strong economic interests and their assistants in politics and academic economics, obscuring the view of other social interests with legitimate claims for their fair part of the pie. Block wants to help the latter with an alternative view and interpretative framework, giving them language questioning and contesting the market hegemony. His concern is the understanding of capitalism and the fact that different understandings represent different interests.

Block assumes four corollaries responsible for the illusion of capitalism equal to unity, coherence, and permanence. The first corollary is that the economy is autonomous, following its own logic. The second corollary concerns a fundamental tension between democracy and capitalism, far from the argument that they are reinforcing one another mutually. The third corollary is the argument that the realization of individual self-interest benefits the whole society, particularly the accumulation of wealth. The fourth corollary argues that capitalism works because of its micro-foundation on individuals. 

These four lines of thought provide the contours of a social theory about capitalist societies. Block confronts what he describes as a social theory based on economic determinism: the economy drives and shapes society. His question is how and to the benefit of whom. The answer is that capitalism is not a self-propelling system. The economy, capitalism, the market, whatever it is called, is part of a social organization of conflicting interests. The economy’s social embedding and political organization and the interest in/capacity for compromises vary continuously.

Of course, there is, in one sense, a dimension of self-regulation in the global market economy since it emerged in the nineteenth century with the industrial revolution hand in hand with colonialism and imperialism under mutually reinforcing dynamics. The powerful representatives of economic interests do what they feel is convenient to make profits irrespective of other interests. Block gives examples of the practices emerging through the dynamics between the industrial revolution and imperialism. He refers to the triangle trade, where English merchants traded fine cotton textiles from colonial India for African slaves, who produced vast quantities of cotton on Caribbean plantations. Caribbean cotton, in turn, became the input for producing low-quality textiles in Britain, which was exported to India and caused unemployment among the textile workers there. British products spoiled India’s textile industry to the point that “the bones of the cotton weavers were bleaching in the plains of India”, as Karl Marx formulated it in a drastic phrase. England used imperial power to eliminate the competition from higher-quality textile production in India and spread unemployment there. More generally, colonialism and the industrial revolution constituted an economic order that was not propelling by itself and was not autonomous. Strong entanglements of political and economic interests steered the world to fit their interests, often with military support. 

Fred Block discerns three entangled processes driving and driven by the powerful industrial-colonial interest cluster: the spread of profit-oriented firms, the rise (and decline) of great powers with military and imperial strength, and the introduction of formal global rules and institutions to maintain the established order and keep it going. These three entangled processes starkly contrast with what he calls the illusion that capitalism has been an autonomous and self-propelling system in stable global expansion for centuries to the benefit of the world. The three interacting dynamics tell a story about turbulence and crises followed by new dynamics. The illustrating cases are Britain and the US in their practices for making the world safe for their business.

In the 1870s, gold became the gauge for measuring profits and market power. The gold standard for keeping global trade together was far from a stable system, as it was argued to be when the neoliberal market language in the 1990s looked for a historical reference point. There was the classical gold standard phase from 1880 to 1914, followed by its ever-deeper crisis that ended brutally, economically in 1929 and politically in 1933. The world war that followed put the gold standard completely out of play. After 1945, the dollar and the US hegemony became the proxy for gold as the world standard, but the world was only the Western world and its colonial and postcolonial annexes. Then came the floating exchange rates after 1971/1973 in response to the dollar collapse after the failure to uphold its gold commitment. The gold gauge had one primary function: to keep governments’ expenditure down and impose austerity politics in the social policy field. Some said that this was good, others that it was a necessary evil to keep the economy going. This function was so strong in the minds of the political and economic leaders that it maintained its grip on them even after the gold standard through the dollar had been abandoned in the 1970s. Financial austerity accompanied neoliberal politics as an instrument argued to promote competition power on the world markets. The outcome was social downgrading for many on the labor side. 

Marx’s mistake, Block maintains, was to see global financial arrangements as an automatic and autonomous reflex of power-driven and profit-maximizing economic relations. Instead of being autonomous, they were established by political action and can be changed by political action. The social movements’ impact on global rules of commerce began with the campaign to end international slave trade. Social protest through the activation and mobilization of social movements is more complicated than just an issue of global class struggle. However, the protests demonstrate that ideas of an autonomous economy subordinating politics are untenable. Here, the echo from Karl Polanyi is unmistakable. Fred Block is the world’s leading expert on Polanyi’s theory on capitalism in its oscillation between embedding and disembedding. Society and social matters is Block’s and Polanyi’s condensed argument. Beyond the abstraction under labels like capitalism and market, the economy is full of interests, cooperating and conflicting, embedded in politics and culture, in society and social life. Capitalist interests are not just free to do whatever they want to but are embedded in society through rules, norms, institutions, and power relationships. It is true that capital representatives continuously try to shake off their containment, to disembed themselves, but sooner or later, the embedding forces catch the economic forces again. This is the Polanyian view on which Block builds his argument.

The illusion of capitalism as a closed, coherent economic system unreachable for political interventions and correcting control needs to be confronted through the mobilization of a transnational social movement for reforming the global market rules, written or unwritten, struggling for social and economic fairness and, ultimately, human survival, Block argues. His argument for a revision of the prevailing order is clear:

“It is a myth that every nation embracing markets and profits will automatically produce global harmony. On the contrary, as nations pursue their advantage in global market competition, the result can be dangerous global rivalries, intensified nationalism, and open warfare. The failure to understand that global order must be created through politics [not by a fiction called Market] can lead to a replay of the rise of fascism in the 1930s” (173-174).

The issue is to create social and political confrontation of delusions about capitalism as a set of unchanging structures. Such delusions make it impossible for societies and the world to move toward greater equality and deeper democracy necessary for lasting planetary peaceful cohabitation. However, change of what is argued to be unchangeable requires action and social and political movement to improve the standards of global labor markets, bring down global unemployment, and reverse the existing concentration of income and wealth in the hands of a worldwide oligarchy of billionaires. The failure on this point will not result in the triumph of the smooth global market surfing above politics, making politics market-compliant and without alternatives. That illusion imploded with the speculation bubble that burst in 2008. The intensification of populist and authoritarian movements is the alternative if Fred Block’s scenario of political interventions and regulation of the market fails.

Fred Block summarizes the situation:

“Why are these global political elites so clueless and so determined to stick with their embrace of austerity as the solution to virtually all problems? They are trapped within the illusion that capitalism is an unchanging and coherent global structure that must be respected at all costs. To be sure, their surrender to this illusion is reinforced on a daily basis by pressures from two connected directions: First, the global financial market orthodoxy. Second, those with great wealth insist that no alternatives to the status quo can even be contemplated” (182).

The finance market orthodoxy deals with privatized trade with money products under emancipation from practically any government control and, as a consequence, imposition of austerity politics on surrendering governments. Free trade with money is the instrument that imposes austerity. It is a blackmailing instrument. Whether the order Block calls orthodox is orthodoxy or laissez-faire without rules and standards is debatable.

The problem that concludes Block’s book is the planetary necessity to reduce greenhouse gases and, at the same time, increase the energy per capita use in the Global South. Anything else is morally unacceptable, he argues convincingly. His solution through political initiatives combines renewable energy technologies in an economy that provides ever-growing outputs with constant or falling energy and raw materials inputs. The political action, nationally and at the world level, also includes a global income guarantee to reduce incentives for economic migration and enable local action on climate change in poor countries, rather than forcing populations to flee.

Like in a baton change, Piketty takes over the baton from Block and passes it on with new arguments that the economy must be a political economy, driven by political choices between alternatives. Piketty’s introduction picks up where Block summarizes his view. Piketty’s concern is socioeconomic inequality, which can only be understood as the consequence of historical circumstances and human culture. Inequality is human-made and has been developed in widely different ways: political, socioeconomic, cultural, religious, i.e., culture in its broadest sense. The collective political mobilization against such inequality trends has been correspondingly diverse. There are no “natural” factors or logic behind the inequalities. Across the great diversity of inegalitarian orders, Piketty discerned in his Capital and Ideology 2020 [French original 2019] a rough pattern since the end of the eighteenth century towards greater social equality, with the French Revolution in 1789 and the enlightenment philosophy as a trigger and motor. He builds on that volume in his new booklet. The gradual, long-term movement in this direction has, in its details, been a halting, chaotic process filled with social conflicts and various forms of collective learning. Piketty asks about the political community and how it has been and is organized with collective rules about ownership and property rights as a crucial point of reference. Piketty’s A Brief History of Equality (2021) and the World Inequality Report 2022 add on to the empirical basis for his new small book. The World Inequality Database, which is behind the report, is the result of the work of more than one hundred international researchers.

Piketty’s ambition is to develop global framing, but for a longer historical perspective, there are available sources only for the global North. The focus becomes Eurocentric when the question is about historical trends. Of course, much is known from the history of colonialism and imperialism, but for systematic North-South comparison, the sources fail. Piketty measures inequality in the North in terms of income and property. In terms of income, the difference declines. Regarding property, the difference remains higher and reached its lowest point in the 1970s. Since 1980, the difference has grown again. The increasing wealth concentration after 1980 accompanied the breakthrough of neoliberal politics in the West. One might say that it is the consequence of neoliberal politics.

Piketty uses Sweden as a case to demonstrate the validity of his argument that politics matters. In the 1960s, Sweden was considered one of the most egalitarian countries in the world. Some attributed this status to a culture with an inherent, natural bent for equality. However, until 1920, Sweden was one of the most stratified countries in Europe, “highly sophisticated in the political organization of its inequality” (2)

On this point, it is relevant to supplement Piketty’s economic-historical and statistical evidence with some observations from Sweden’s political history. High inequality changed rapidly and fundamentally in the 1930s when the social democrats came to power. The Russian revolution and the 1918-1919 revolts in Germany built up political pressures, which led to three social democratic governments in the first half of the 1920s. They were brief in a turbulent time but were a relevant experience when, against the backdrop of the economic crisis in the 1930s, the labor movement established a lasting parliamentary power position with a social democratic prime minister for 44 years from 1932 on but for a brief interlude of a few months in 1936. The fight against unemployment was the central goal in the 1930s and to keep Sweden outside the Second World War in the broad coalition government during the war. However, after that, the social democratic governments developed an expansive welfare program for public welfare based on redistributive tax politics with progressive income taxes. The income differences decreased, and education, housing, old-age pensions, and healthcare schemes spread the enjoyment of public tax-funded welfare to broad social strata. Three generations of social democratic leaders designed this expansion and its financing: in the 1920s tentatively from a weak parliamentary position, from the 1930s, systematically but to a limited extent, from the 1950s, more expansive to new areas. They shaped the economy with tax politics to fit their political welfare visions. The 1930s crisis and the World War enforced a national profile and neutral foreign politics. However, the first and the third generations combined nation-building with a strong international commitment. Hjalmar Branting and Rickard Sandler were frequent travelers on the train to Geneva and the meetings with the League of Nations there. Olof Palme and Ingvar Carlsson directed from the 1960s on Sweden’s international commitment towards the Third World and development aid around the UN, which they wanted to see as a global negotiation center for peace and decreasing global inequality.

This outline of the history of a political program with its picture of the political machinery supplements Piketty’s argument based on an economic-historical analysis of large sets of statistics. The conclusion of both methodological approaches is clear: Politics matters when it comes to the economy. The market doesn’t do anything by itself, but political interests and ideologies might turn the economy in different directions. By political action. 

It would be a great mistake to see the breakthrough of the Swedish welfare state as a relentless triumphal procession fulfilling a vision or a plan. That would be replacing economic determinism with political determinism. There was continuous opposition to the development, with complaints about taxes being too high and the state suffocating private initiatives. In the parliamentary elections between 1948 and 1988, the social democrats got 42-48 per cent of the votes; in 1962 and 1968, 50 per cent. In 1991 it went down to 38 per cent, but in 1994 it went up to 45 again. The figures are impressive, but they represented only half of the voting population and were far from consensus situation. The voting turnover was regularly over 80 per cent, and in the 1970s and 1980s, around 90 per cent. The intense political struggle bound Sweden together as a political community around a market economy that provided both the goal and the starting point for politics, being an instrument for politics but also rewarding for the capital owners. The political economy that emerged was a mutually reinforcing win-win arrangement for both consumers and producers.

Piketty notes in his outline of the Swedish building of a less inegalitarian society that the trend broke in the 1990s when the social cleavages began to grow again. In previous works, he has shown how this was a global pattern in the wake of neoliberal globalization. The Keynesian top-down redistribution shifted to the bottom-up. This observation, too, confirms his thesis about the crucial role of politics and that the economy is a political economy. The open question is only what the political stands for. The shift in the 1990s had begun in the 1980s and was politically determined legitimized by a new ideology. Changing ideological and political power relationships changed the preconditions for social redistributive politics. Neoliberalism became hegemonic and set the new framework of the discourse. The shift had nothing to do with the final triumph of some economic law about the Market, as was the strong argument at the time.

This development, beginning with the crisis in the 1970s, profoundly impacted social democratic leaders in Europe. They felt their hands being back tied but many of them thought that this was because of some economic reason. The “reason” was the political decision under intense business interest pressures to release all national restrictions against capital movements. Capital’s market freedom versus accusations of state sclerosis was the message that captured the minds and for a while became hegemonic. The free international movement of capital was the political move that, in its consequence, led to austerity politics.

In Sweden, the finance minister began to argue for free capital movements and privatizing public welfare services in areas like education, nursery, and health care, combined with budget restrictions. In 1990, he resigned because of the resistance he met, and the following year, the tensions within the social democratic party led to the loss of the election. In 1994, the Social Democrats under Ingvar Carlsson returned after the election, forming a new government.

In 1996, Ingvar Carlsson stepped down as prime minister. A new generation of European social democratic leaders went in the wake of Tony Blair and Gerhard Schröder in the neoliberal direction, and “social democracy in one country” was as impossible as it had been for Mitterrand in the early 1980s. The political middle field that the left-right distribution conflict since the 1930s kept innovative and dynamic, exactly because of the interest conflict and search for compromises there, shifted to the depoliticized neoliberal space where both the social democrats and the conservatives became neoliberal, and their market management “without alternatives” (Thatcher and Merkel) stifled the political debate. 

Before Carlsson left, he co-chaired a prestigious international expert commission on global governance for a more equal world. It was a follow-up commission on Willy Brandt’s high-profile commission on the same issue fifteen years earlier. Carlsson-Ramphal outlined the contours of a world society based on the civil society model. A world society with world governance around the UN. Carlsson later talked about the disappointment when he found that their report didn’t get the attention they had hoped and expected. In retrospect, it is clear that when the report came in 1995, the trend was not a world society but a global market. That was a different thing. Again, the development confirms Piketty’s thesis. The market didn’t establish itself but emerged through political action. Although with a different political substance.

The financial forces unleashed by governments in the general euphoria after 1990 ended in unbridled speculation in money and financial products that abruptly stopped when a giant financial bubble burst in 2008. The political restoration that slowly started after the bailout of the world’s banks focused on re-establishing the nations and their states under demarcation to the globalization project. In this move, democracy proved more fragile and exposed to populism and authoritarianism than expected. Patterns from what was generally considered a past historical stage recurred. The neoliberal middle field of hegemonic consensus, where it was argued that there were no alternatives to the market dictates, was, as just said, depoliticized. Thus, politics moved to the edges. This was a very different kind of polarization than the redistributive conflict in the middle field in the 1960s that knit together a political community. 

There is no automatism in this development, neither so far nor for the future, and no intrinsic trend towards a big geopolitical clash, but there is, at present, a strong need for political forces to confront such a trend. This is what Piketty’s thesis, and his Swedish case teach us. And Block’s thesis, too, in a time when the Swedish solution has dissolved and the illusion that Block discerned has become disillusion. There is a need for a new vision of a planetary political economy with politics for less global inequality.

How to quote:
Cit. Bo Stråth, “The Illusion and the Solution ‒ the Dissolution and the Disillusion.” Blog. https://www.bostrath.com/planetary-perspectives/the-illlusion-and-the-solution-the-dissolution-and-the-dissillusion/ Published 29.01.2025

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