The rule that total spending equals total income is very important, but only true for the economy as a whole. It is not true for individual households, businesses or sectors of the economy. Here, we consider a household.
Macroeconomic controversies usually center on causation. Two questions of significance for policymaking concern output and growth:
- Is output demand or supply determined?
- Is economic growth demand or supply led?
If demand is the driver of output and growth, there will be considerable scope for government spending to influence the economy’s trajectory. If, instead, supply-side factors are determining, fiscal policy will be impotent other than possibly temporarily. Recent history suggests – much like the earlier history of the Great Depression and Second World War – that fiscal policy is important to the performance of the economy, and that demand matters. In my view, the causal significance of demand follows quite strikingly from Modern Monetary Theory’s institutional analysis of sovereign currencies together with the fully compatible Post Keynesian analysis of banking and endogenous money. Before getting into that, a brief summary of opposing positions on output and growth determination is perhaps warranted.
An issue that troubles me in relating Marx to Modern Monetary Theory (MMT) is whether to apply the ‘productive/unproductive labor’ distinction to production that is monetized in a state money. Although I am not especially enamored of the distinction in general, it is particularly its application to public-sector activity in a state money system that strikes me as problematic. I ask the reader to countenance two propositions:
Proposition 1. All public-sector labor in a state money system is productive.
Proposition 2. Proposition 1, if true, would alter none of Marx’s central theoretical conclusions.
If the following argument is mistaken, maybe someone can set me straight, and it will then be clearer how to proceed in future.
If you are of a certain age, you likely played Commander Keen. Cane’s run in the video embedded below was a world record at the time, but has since been beaten in a near flawless run by CapnClever. Even so, I like this video because of the amusing running commentary and chat that is conducted during game play. (There are some expletives, so any children watching might need to cover their parents’ ears.) The ‘death exit’ at the beginning of the second level is a glitch in which the player can allow Keen to die at the edge of the game’s map and then immediately save and reload to complete the level.
It’s that time of year again to try our hand at Holiday Time. It’s not easy, after fixating on economics, to switch our attention to something else. It seems advisable to do so only in stages. Accordingly, the first video installment below retains a distinctly economics flavor, perhaps leaning more toward the business end of the discipline. After that, though, things are likely to go somewhat haywire.
Have you noticed how things we used to be able to do are beyond our capabilities now?
We finally reached a point where we were able to provide free university education. Then we grew wealthier, and some countries couldn’t afford it anymore.
Some of us still have universal public health care systems, but they’re increasingly a chronic burden. Maybe they made sense once, but it’s only a matter of time before they go. Sure, Cuba can do it, but they’re poorer than us.
If we were to believe most politicians, we’d be under the mistaken impression that government not investing today does future generations a favor. Leaving communications systems underdeveloped, road and transport networks crumbling, education and public health systems deteriorating, our cultural institutions eroding, developments in science and technology stagnating, and so on, will supposedly free future generations of any burden that might otherwise be imposed upon them.
There appears to be a considerable degree of compatibility between Marx and various Kalecki- and Keynes-influenced approaches to macroeconomics. Compatibility, of course, does not imply that all these theoretical approaches stand or fall together. It simply suggests, to the extent that the compatibility exists, that it is possible to see them all as fitting within an overarching, open analytical framework. In this post, the compatibility is considered in relation to the private-sector monetary circuit of a capitalist economy.
We saw in parts 2 and 3 that funds initially enter the economy through either government spending or bank lending. In the future, we will take a closer look at these activities. For now, it is enough to understand that these funds, once created, can be used for various purposes, including spending.
It was seen in parts 1 and 2 that government, as our collective agent, is able to use its currency to attract some workers and resources to the public sector. This enables it to carry out important functions. One of these functions is to shape and regulate the monetary and banking system.