Previously I have discussed how Marx’s well known aggregate equalities have been shown to hold under single-system interpretations of his theory of value. In the July 2018 edition of the Cambridge Journal of Economics, there is a noteworthy paper by Ian Wright that reconciles the classical labor theory of value with Marx’s prices of production within a dual-system framework. As with single-system interpretations, Marx’s equalities also hold under Wright’s approach. However, they do so in a different way. Here, I want to offer some thoughts on the difference.
Modern Monetary Theory (MMT) offers an understanding of sovereign (and non-sovereign) currencies that is applicable to a wide range of economic systems, including capitalist and socialist ones. Irrespective of the personal political preferences of its proponents, the theoretical framework in itself is neutral on the appropriate balance between public sector and private sector activity, or the relative merits of capitalism and socialism. In contrast to neoclassical theory, which starts from a general presumption in favor of private market-based activity except where the existence of market failure in excess of government failure can be explicitly established, MMT as a theory characterizes the appropriate mix of public and private activity as a social (or political) choice.
With Modern Monetary Theory (MMT) making inroads in the public policy debate, some New Keynesians have transitioned from ignoring or dismissing the approach to engaging with it. This is healthy for both sides. There has been a tendency, though, to make “we’ve known it all along” type statements. A comprehensive response to the “nothing new” claims is provided by Bill Mitchell in a recent three-part series of posts (part 1, part 2 and part 3). My focus here is narrower and concerns a view (for example, expressed in a considered response here) along the lines that MMT has nothing new to say when the economy is at full employment.
As is well known, Marx and the classical political economists before him made a distinction between productive and unproductive labor. Marx’s distinction somewhat differed from Smith’s. For Marx, labor is productive when it is: (i) directly productive of surplus value; and (ii) exchanged directly against capital. I remain unsure how applicable the distinction is to a state money system. Some of my misgivings are explained in an earlier post. The uncertainty has held back an attempt to explore connections between Marx and Modern Monetary Theory (MMT). To get around this, here I proceed on an as if basis by assuming for the sake of argument that the distinction is meaningful.
The following is mostly intended as background for a possible post (or posts) on quantity effects of a job guarantee in which the standard income-expenditure model is taken as a base. It is desirable to work from as simple a starting point as possible as the exercise can complicate pretty quickly. To minimize unnecessary complications, the base model will be presented in highly abbreviated form. This will not cause anything important to be lost because it is always possible to switch back to the more detailed version of the model when desired. The abbreviation has already appeared here and there in earlier posts, but to avert possible confusion it seems advisable to spell out exactly how it corresponds to the more familiar version of the model.
At one time or another many of us have probably pondered questions such as: Where does a national currency come from? How does a currency system basically work? Why might people agree to accept a national currency in the first place? How can we be confident that a national currency won’t collapse and that people will continue to accept it in economic transactions? Can a government ever go broke and leave citizens footing the bill? Can financial affordability even be an issue for government?
An alternative title to this post could have been, ‘The Interest Rate on Public Debt is at the Discretion of Government’. This remains true even though, in the neoliberal era, governments usually require themselves to follow various unnecessary rules on how their spending is to be conducted. These rules are voluntary and can be removed at a later time. But even while these rules are in place, they do not prevent government from dictating the terms on which it spends.
An earlier post discussed some of the dynamics of output and demand implicit in the income-expenditure model. Attention was confined to a simplified economy that was stationary other than when adjusting to one-off exogenous changes in demand. The present post considers a continually growing economy in which autonomous demand changes over time. The discussion is kept simple by treating all demand other than private consumption as exogenous. The model can be extended to include additional endogenous demand components – such as investment or job-guarantee spending – but this is left for another time.
Whenever the topic of economic growth is broached, there is a common and understandable reaction along the lines that growth is ecologically unsustainable or socially harmful. Since one of the preoccupations of this blog is demand-led growth, it is perhaps worth pausing to reflect on the appropriateness of the topic. This can be broken down into two parts. Why consider growth as such? And why emphasize the possibility that growth is demand led?
Theoretical studies of output and growth often focus on the behavior of equilibrium output. The usefulness of this approach depends on there being a tendency for actual output to converge on equilibrium output. With such a tendency present, studying the behavior of equilibrium output will tell us something about the behavior of actual output. It is therefore of interest to spell out the process by which an economy in disequilibrium is thought to tend toward equilibrium.