Taking the role of effective demand seriously can sometimes seem to put you between a rock and a hard place in relation to other economists. Here, I want to consider the significance of demand in general, its connections to profitability, and the implications for capitalism. It is argued that demand considerations, when considered in conjunction with Marx’s ‘law of the tendential fall in the rate of profit’, do not call for the preservation of capitalism but rather suggest a means of transitioning to socialism.
Improvements in productivity make it possible to produce more with a given employment of labor. However, under capitalism, whether this greater potential is fulfilled is contingent on there being sufficient effective demand to sustain the higher potential output. Any deficiency in demand will result in unemployment and forgone production. In the long term, with production methods becoming increasingly mechanized, we could imagine an economy requiring little, if any, labor to produce marketable output (i.e. commodities). Demand for this output could be maintained in two main ways. One method would be for currency-issuing governments to use their fiscal capacities to maintain full employment in non-market-based production. Another method would be to introduce basic income. It would also be possible to adopt some combination of the two policy approaches (this idea is discussed here and here). The implications of a purely or highly mechanized economy can be considered in terms of Marx’s analysis of capitalism. Here, the temporal single-system interpretation (TSSI) is applied.
Yesterday (here) I linked to a post by Matias Vernengo on Keynes’ theoretical contribution in light of the capital debates. I thought it might be worthwhile to elaborate on a central aspect of Vernengo’s post, particularly as it concerns the fundamental differences between Keynes’ ideas and the interpretation of neoclassical synthesizers of his work. Vernengo’s perspective on the significance of Keynes’ theoretical insights and the deep flaws in the marginalist interpretation is one that is probably held by most economists working in Sraffian and Post Keynesian traditions. I would think MMT economists also tend to share this perspective.
In previous posts, I have made frequent reference to the Cambridge Capital Controversy and its significance for macroeconomic debates. Robert Vienneau, who often writes on issues relating to this controversy, draws attention (here) to a recent post by Matias Vernengo which very clearly distinguishes Keynes’ contribution from the marginalism of the neoclassical synthesis and New Keynesian economics.
The impetus for this post is a short video in which Amy Goodman interviews David Graeber, one of the organizers of the Occupy Wall Street movement. Hat tip to Tom Hickey at Mike Norman Economics for the link. The interview touches on a number of important issues. Here, I want to explore some of the points raised by Graeber in his discussion of debt and taxes.