The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers by Michael Perelman (review)

Despite the recent tumult of a global financial crisis, Depression-level economic stagnation in North America, and a government bailout of a criminal financial services industry that caused the crisis through unfettered greed and duplicity, belief in the beneficence of the unregulated market remains resilient. This laissez-faire fundamentalism is the inevitable outcome of mainstream economic theory, argues dissident economist Michael Perelman. His new book The Invisible Handcuffs of Capitalism demonstrates that the discipline of economics has been predicated on a tenacious disregard of the realities of work and an equally tenacious persecution of those who question prevailing dogmas. The result is an economic system that prioritizes the profits of the powerful over the flourishing of the many.

Perelman, an economist at California State University who has previously written several books on economic theory and the development of capitalism, enthusiastically tears into the shibboleths of his profession. His title inverts Adam Smith’s famous “invisible hand,” Smith’s contention that the market worked automatically to justly order human relations. Perelman substitutes a pair of “invisible handcuffs,” reflecting his concept of the market as a coercive restraint on human potential. The dogmas of mainstream economics that determine government economic policy – from interest rates to stimulus packages to unemployment insurance – not only exploit workers, but also undermine capitalism itself by squandering the potential, knowledge and creativity of the vast majority of working people. This echoes Harry Braverman’s pioneering work on the labour process.

Perelman calls our current system of economic theory and practice “Procrusteanism.” The name refers to the ancient bandit king who sadistically forced his captives into a bed, stretching those shorter than the bed and hacking the limbs from those who were too tall. He displays how the seemingly abstract dictates of economic theory do actual harm to working Americans. For example, US bankers and Treasury officials from Carter’s treasury secretary Paul Volcker to the present day have, under the guise of attacking inflation, attacked workers. Their policies keep wages low, unemployment high, and workers quiescent. We can see powerful examples of the rhetoric of economic violence in the pronouncements of Volcker – who steeled his fellow economists for “blood all over the floor” after his assault on wages guaranteed higher unemployment – and Greenspan’s contented musing over the “brutalized” workers of the mid-1990s who, perpetually afraid of losing their jobs, accepted stagnant wages even during a time of rapid economic growth.

These episodes give the reader a peek behind the curtain where the wizards of macroeconomics work. This field is governed by, Perelman shows, a stubborn, obtuse tendency to ignore factors of production and working conditions, instead theorizing the economy as a level playing field of rational actors engaging in free transactions. This produces economic theory and policy that views the daily concerns of working people –job security, fulfilling work, safe and healthy workplaces, livable wages – as irrelevancies. Perelman’s contention that this dismissal is part of an effort to “craft an ideology that justifies the current system” sounds far-fetched at first, but it becomes more plausible after reading of the opprobrium visited on those scholars who question economic orthodoxy. (114–5) Alan Krueger and David Card, respected economists who dared to publish a paper suggesting increased minimum wages did not increase unemployment, were smeared as “camp-following whores” by a Nobel laureate in the Wall Street Journal. Card later dropped research into the subject in the face of intense disapproval from his colleagues.

Perelman locates the genesis of Procrusteanism in the very works of Adam Smith himself. Procrusteanism was how Smith spackled over the weaknesses in his theory of the division of labour, for example the central question of how a market based on such a theory grows. Smith ignored the international colonial division of labour, which revealed the crucial role of the state in capitalist accumulation and thus contradicted Smith’s model economic world of individual voluntarism...