Recent posts have considered one or other of Kalecki, the job guarantee and the possibility of transitioning over time to socialism. There is a connection between these topics that has only been touched on in passing in earlier posts. The connection is visible in an old paper by Peter Kriesler and Joseph Halevi which draws on Kalecki’s 1943 essay, “Political Aspects of Full Employment”, to critique the job guarantee proposal. An outline of Kalecki’s argument in this well known essay is provided in an earlier post.
The following summary of Kriesler and Halevi’s argument, taken from the conclusion of their paper, provides sufficient detail for present purposes:
As has been pointed out, governments can, through the use of policy – fiscal rather than monetary – achieve full employment without major problems to the economy. Kalecki showed that the traditional objection focusing on the problems of financing fiscal policy are easily overcome. However, although the achievement of full employment is essentially an economic matter, its maintenance becomes a political one. Full employment conflicts with the interests of capitalists as a class. As a result, they will bring great pressure to bear on governments, which will make the maintenance of that full employment extremely problematic. The main concern of capitalists is that full employment lessens their power in the class struggle with workers, to impose conditions and wages which are favorable to them. Without changes to the fundamental institutions of capitalism … the maintenance of full employment remains an unachievable goal in capitalist societies. (emphasis added)
The italicized phrase in this passage is particularly relevant. On the basis of Modern Monetary Theory (MMT), it is possible to argue (see here) that the failure of the gold standard and subsequent collapse of Bretton Woods has actually resulted in a significant institutional change that makes the maintenance of full employment conceivable. The main reasons for this are:
1. In a sovereign currency system (especially one in which the exchange rate is permitted to float), currency-issuing government can set the rate of interest on its liabilities as a matter of policy. This is different from other monetary arrangements in which the markets can exert upward pressure on the interest rates applying to a government’s debt.
2. The government in a sovereign currency system faces no revenue constraint, only resource and political constraints.
An implication is that even though capitalists are still likely to oppose full employment, they could not prevent a determined democratically elected government from pursuing the will of the general population. The operative factor would then become the strength of the democratic pressure exerted by general populations for full employment relative to the political power of the capitalist class.
Yet, if this argument is correct, it would not entirely invalidate the position of Kriesler and Halevi (nor Kalecki), since their argument is that full employment could not be maintained without a fundamental change in institutions. It is just that Kriesler and Halevi have not regarded the collapse of Bretton Woods to be a fundamental institutional change, just as Kalecki, whose essay appeared in 1943 prior to the commencement of Bretton Woods, appears not to have regarded the UK’s abandonment of the gold standard in 1933 as a fundamental institutional change. A possible reason for this is that they are (or were) looking for the fundamental institutional change directly in the wage labor relation (i.e. in the sphere of production) rather than in the monetary system:
The BSE [buffer stock employment] or ELR [employer of last resort] proposals for long term solutions to the problem of full employment in capitalist economies are not the fundamental reform in the Kaleckian sense. Rather than dealing with the underlying contradictions in capitalism by addressing aspects of class struggle, these solutions really only bandage over the problem.
However, MMT suggests that a change in monetary regime can have powerful implications. In particular, MMT suggests that sovereign currency is logically prior to capital. Society possesses the capacity to determine the parameters of capitalist and non-capitalist behavior through an appropriate application of sovereign currency. If a popularly backed government were determined to deliver full employment, capitalists would be unable to prevent it through any influence over the terms on which the government spent. Capitalists would, of course, resort to whatever political power and influence they had, but they could not obstruct fiscal measures through bond vigilantism or investment strikes.
At the end of his 1943 essay, Kalecki wrote:
‘Full employment capitalism’ will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.
Kalecki’s argument here may not actually be incompatible with MMT. Modern Monetary Theorists argue that sovereign currency makes ongoing full employment feasible. Kalecki suggests that ongoing full employment will undermine capitalism over time. Perhaps both views will turn out to be correct.