Recently, a lot of my posts seem to have been about either Kalecki, the job guarantee (and related proposals) or the possibility of transition over time to a post-capitalist society. In this post, I thought I would highlight a connection between these topics that I have not discussed other than in passing. I was reminded of the connection when I noticed that Tom Hickey had provided a link to an old paper by Peter Kriesler and Joseph Halevi which draws on Kalecki’s 1943 essay, “Political Aspects of Full Employment”, to critique the JG proposal.
The paper caught my attention because one of its authors, Joseph Halevi, was the person who first introduced me to the work of Kalecki as well as to Baran, Sweezy and the Monthly Review school while I was an undergraduate student. I have always been grateful for this as it gave me a window into heterodox, including more radical, approaches at a time when otherwise I might have dropped study of economics altogether. The paper draws on Kalecki’s well known essay, which I have outlined in a previous post, so I won’t reiterate the details of the argument here. 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)
I find the phrase in bold particularly relevant. MMT would seem to suggest that the failure of the gold standard and subsequent collapse of Bretton Woods has actually resulted in significant institutional change that makes the maintenance of full employment conceivable. The main reasons for this are:
1) The currency issuer in a modern money system can set the rate of interest on the government’s liabilities as a matter of policy. This is different from other monetary arrangements in which the markets can increase rates on sovereign debt.
2) The government in a modern monetary system is not financially constrained.
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 (and certainly not 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 recognized (or considered) the collapse of Bretton Woods to be a fundamental institutional change. The reason for this is that they are looking for the fundamental institutional change directly in the wage labor relation (i.e. in the sphere of production) rather than in money:
The BSE or ELR 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 fiat money is logically prior to capital. Society possesses the capacity to determine the parameters of capitalist and non-capitalist behavior through the democratization of money. If a popularly backed sovereign government were determined to deliver full employment, capitalists would be unable to prevent it through any influence on the terms on which it spent. Capitalists would, of course, resort to whatever political power and influence they had, but they could not obstruct fiscal measures through bond vigilantism, investment strikes, and so on.
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 that of the MMTers. The MMTers argue that fiat money 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.