A new era is dawning. The financial crisis of 2008 is not the end of capitalism. Capitalism dates back to the Medici revolution, which invented modern banking, but since then it has gone through many different regimes and articulations. The 2008 crisis marks the end of the Reagan-Thatcher counter-revolution. Neoliberalism and monetarism are dead. Even Nicolas Sarkozy now calls for the re-foundation of capitalism.¹ This does not mean that thousands of policy-makers are not continuing to implement old recipes, helplessly watching their loss of control over events. Antonio Gramsci once said a crisis is when the old is dead, but the new not yet born.

With the election of Barack Obama new paradigms in policy-making become possible. Yes, we can reconcile markets and social justice; we can invent a new social model for Europe. We can integrate the real and financial economy. But how? European social democrats were able to shape various epochs to different degrees. How can they adapt to the new situation? Those who are in government or wish to form it will have to become the architects of the new Europe after having served as fire brigade in the crisis.

A new perspective for Europe’s left needs to integrate economic and political norms and values into a coherent project for society. Since World War II, three paradigms have dominated political and economic thinking in the world. In the East, Marxism rejected markets and democracy; in the West, Keynesianism laid the foundations for social democracy and political liberalism, while Friedman’s counter-revolution developed a neoliberal ideology from the theories of monetarism.

Friedman’s anti-Keynesian revolution was not primarily directed against the welfare state, although he did think that ‘most hardship and misery in the United States today reflect government’s interference’.² His more fundamental attack sought to establish the superiority of the market economy over centralised planning. In this he was right. Today, after Deng Xiaoping and the fall of the Berlin Wall, we are in one sense, all Friedmanians.³

But this concession does not warrant the adoption of the erroneous monetarist paradigm. Friedman did understand that money was crucial to the functioning of a market economy. So did Marx. But they both remained confined to the classical economic paradigm, whereby markets are places for exchange of ‘real’ goods, while money was simply a veil that covered the reality. Until today socialists all too often keep making the same mistake. Marx drew the radical conclusion that capital and therefore money must be abolished. Not surprisingly, the ‘new’ economy of communism resembled the old: resources were allocated by hierarchy, and not by contracts between free and equal individuals; markets and consumer choice were suppressed.

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1. European Parliament (2008), ‘L’Europe doit porter l’idée d’une refondation du capitalisme mondial. Ce qui s’est passé, c’est la trahison des valeurs du capitalisme, ce n’est pas la remise en cause de l’économie de marché’, 21 October, http://www.euractiv.com/fr/services-financiers/sarkozy-presente-refondation-capitalisme/article-176573. [↩]
2. Friedman, Milton (1997), ‘Is Welfare a Human Right?’, in, Leube, K.R., The Essence of Friedman, Hoover Press Publication, Stanford. [↩]
3. On 31 December 1965, Time magazine put John Maynard Keynes on the cover and quoted Friedman as saying, ‘We are all Keynesians now’. Later, Friedman said he was quoted out of context. ‘In one sense, we are all Keynesians now; in another, no one is a Keynesian any longer. We all use the Keynesian language and apparatus, none of us any longer accepts the initial Keynesian conclusions’. (See http://eh.net/pipermail/hes/2002-July/002319.html). [↩]

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