In a previous post, I briefly introduced Marx’s value theory. Values and prices were considered at the aggregate level without breaking the economy down into different sectors. This enabled a focus on basic macro relationships. In this post, the economy is disaggregated into several sectors. Following the ‘temporal single-system interpretation’ (TSSI), aggregate surplus value is taken to determine the average rate of profit in the economy, prior to the determination of individual prices. If free capital mobility is assumed, there is a tendency for rates of profit to equalize across sectors. This causes a divergence of prices from values in individual sectors. Nevertheless, key aggregate equalities continue to hold, and the divergence of prices from values occurs in a systematic way, according to the composition of capital in each sector. The exposition closely follows a 1999 paper by Andrew Kliman and Ted McGlone entitled, ‘A Temporal Single-system Interpretation of Marx’s Value Theory’, published in the Review of Political Economy.
I’ve been thinking about it. Work, being a core part of life, is meant to be interesting, engaging, and meaningful. Otherwise, why are we wasting our time on this planet? Yet, for many, work is not living up to its name. Work of the good kind is less and less on offer in the jobs being created. I’ve been reflecting on possible reasons why, and decided it’s really simple. The problem is not the jobs. It’s us. Most humans are simply not the kind of people a boss would want to hire.
In a recent post focusing on inflation and distribution, I touched on the connection between the aggregate markup and income distribution. Here, I thought it might be worth demonstrating the connection explicitly, and then outlining a simple extension that brings out the impact on distribution not only of the markup but also fluctuations in the prices of raw materials. The extension is due to Kalecki, who outlines the argument in the second chapter of his Theory of Economic Dynamics: An Essay on Cyclical and Long-Run Changes in Capitalist Economy, first published in 1954.
The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt. With private debt burdens mounting in relation to real GDP, we were told that consenting adults knew what they were doing. Then the crisis hit. Since then, as the private sector attempted to deleverage and get its unsustainable debt levels under control, we were told that the government’s deficits, which increased as a matter of accounting, were unsustainable. The outcome, depending on which doomsayer you listened to, would supposedly be hyperinflation, escalating interest rates, sovereign default, a crippling debt burden on future generations or some heady combination of any or all of these calamities. For governments that issue their own currencies, these claims are false. Even in the eurozone the sovereign-debt crisis is a manufactured one that can be alleviated indefinitely by the European Central Bank. So what explains the neoliberal preference for private debt and aversion to government deficits? The class-interested motivations seem crystal clear.
An earlier post discusses the way in which Modern Monetary Theorists conceptualize the value of the currency. In this context, ‘value of the currency’ refers to the currency’s domestic value, not its exchange rate. This value is defined in MMT as whatever must be done to obtain a unit of the currency. It can be defined in terms of minimum-wage or ‘simple’ labor time. A minimum wage of $10 would imply that it takes 6 minutes of simple labor time, or its equivalent, to obtain a dollar, expressed as 6 minutes/dollar or 0.1hrs/dollar. The present post considers the connection between currency value, inflation, and distribution.
Kalecki’s profit equation famously shows realized gross profit, prior to its distribution into various parts (retained earnings, interest, rent, etc.), as a function of aggregate demand. In a simplified model of a closed economy with only capitalists and workers, in which workers in aggregate do not save, it shows that profit is the sum of capitalist consumption and private investment. On first encounter, this is an intriguing relationship. One explanation, discussed previously here, is that wages, being spent entirely on consumption items, return to capitalists, whereas capitalist expenditures remain with the capitalist class as a whole. This has been summarized as “workers spend what they get and capitalists get what they spend”. This aphorism is eye-opening and fascinating, yet, in its own way, also somewhat mysterious if pondered for long. Kalecki provided an alternative way of viewing the situation, which may further aid understanding.
In thinking about the relationship between Marx and Modern Monetary Theory (MMT), one point of entry appears to be the ‘monetary expression of labor time’ (MELT), introduced by Alejandro Ramos Martinez in chapter 5 of The New Value Controversy, in connection with MMT’s ‘value of the currency’. In considering this connection, the ‘temporal single-system interpretation’ (TSSI) of Marx’s theory of value shall be adopted. Chief proponents of this interpretation include Andrew Kliman and Alan Freeman. For readers unfamiliar with Marx, an earlier post provides an overview. Another post provides an introduction to the TSSI.
Federal systems, in a similar way to a common currency zone, seem tailor made for neoliberalism. By starving currency-using state governments of funds, a currency-issuing federal government is able artificially to create a need for the states to find private sources of funding that would be better provided through fiscal transfers. Details from one federal system to another differ. In Australia, the taxing powers of the states are deliberately restricted relative to their responsibilities over service provision. In the eurozone, member governments have voluntarily poleaxed their capacity to run deficits.
I’m not sure how well known this is outside Australia, but a couple here claim to be Jesus and Mary Magdalene, soulmates who have reincarnated on earth as Alan John Miller (“AJ”) and Mary Suzanne Luck. Currently based in Kingaroy, Queensland, they teach a message of Divine Truth. I only became aware of the situation while browsing YouTube, where various hatchet jobs by current affairs TV shows can be found. Predictably, the shows portray the pair as dangerous, chilling cult leaders. Rather than provide links to these offerings (they are easily locatable on YouTube), I will allow the corresponding Wikipedia entry to suffice. It is actually no more informative than the TV shows, and about as hostile. So, finding myself none the wiser and by now intrigued, I decided to look into the matter.