Kalecki, the Job Guarantee and Future Society

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.

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12 thoughts on “Kalecki, the Job Guarantee and Future Society

  1. Thanks, Neil. I appreciate the link. I have actually read most of the papers on this topic in the past. I read the paper by Kriesler and Halevi before knowing anything about MMT, because of my interest in Kalecki. Their paper focuses more or less exclusively on Kalecki’s 1943 argument.

    My intention in this post was not to provide a response to Kriesler and Halevi’s paper but rather to make quite a simple observation, which is that the MMT insights on currency sovereignty may well address Kalecki’s point about fundamental institutional change being required before full employment can be maintained. That is, the failed attempt under early capitalism (discussed by Polanyi) to integrate money more fully into the market economy (i.e. through the gold standard) and the subsequent breakdown of Bretton Woods (and the current problems in the EMU) all seem to indicate that the move to flexible exchange-rate fiat currency systems may in fact represent such a fundamental institutional change.

    An effect of this change is to reassert the priority of society over capital. This also opens the way, in my opinion, to fundamental changes in the sphere of production.

  2. Peter,

    “Without changes to the fundamental institutions of capitalism … the maintenance of full employment remains an unachievable goal in capitalist societies.”

    I guess it depends on what you mean by the “fundamental institutions of capitalism.” If these don’t include political institutions then I think this argument is wrong. You’ve pointed to the idea that fiat money systems accompanied by the right politics can maintain FE. I agree. But that means that the issue is whether FE reforms can retain the political support they need to prevent the evolution toward capitalist oligarchy/plutocracy?

    I think they can, but that we have to create a new institutional framework allowing us to change those aspects of our present situation that support oligarchy and undermine open society. We need a framework that will operate within the context of existing rules and laws to create changes that will support increased self-organization and distributed knowledge processing shifting our democratic Promethean Complex Adaptive Systems back towards an open state. We need that because the current laws are biased to maintain the oligarchy in power. Lawmakers have negative incentives to change this network of laws, so we have to find a way to get around them.

    The new institutional framework must provide an alternative network of social and political relations to the contemporary world of political parties and established interest groups. The alternative world must embody the key attributes of open society, which means it must provide an informal communications and knowledge network that is very much independent of the mass media, and also capable of enabling the creation of highly cohesive voting blocs and electoral coalitions of many millions of people, and even new political parties, which can offer decisive support to candidates and office holders in return for their continuing support of voting bloc agendas.

    The alternative world will then work as a meta-layer constraining the prior political world and preventing it from concentrating power in oligarchies by subjecting them to continuous self-organization and a cultural background of new knowledge arising from distributed knowledge processing. It will place new ecological constraints on the current political system, driving it back towards a condition in which the ability of individuals to both arrive at more accurate constructions of reality, and act on them, is dominant.

    The meta-layer can be provided by a web-based platform for political organization eventually incorporating most of the eligible voters in a political system, and providing capabilities for political organization that can overcome the impact of big money and big media on political parties, legislators, legislatures, and politics generally. A platform like this is in development and a place holder for it is here: http://www.reinventdemocracy.net/

    Whether MMT succeeds or not, whether JGs or BIGs get passed, whether we use the power inherent in our fiat monetary system to help us solve our increasing burden of outstanding public problems, will depend on developments outside of economics and MMT as a particular approach to it. In the end the political system and what we can do with that will control things including how or whether economics is used for the public purpose.

  3. “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.”

    A little tangential but these two schools of thought are VERY different — and yet people on the left often seem to equate them.

    Kalecki was a Keynesian before Keynes. He saw deficits in the same way as most Keynesians do. The Monthly Review crowd were classical to the core. I don’t have much of their work but I’ll bet I could pull up a quote within minutes about the impending government debt crisis of 19xx.

    I’ve always thought these were oil and water, to be frank. And yet I constantly see them in the same sentence.

  4. Philip: I guess the main similarities are that both Kalecki and the Monthly Review school were influenced by Marx but rejected his theory of value, and both stressed demand deficiency. The context for my introduction to the two at the same time was due to having been assigned an essay question relating to stagnation and the U.S. military industrial complex.

  5. Joe, I very much agree with this:

    Whether MMT succeeds or not, whether JGs or BIGs get passed, whether we use the power inherent in our fiat monetary system to help us solve our increasing burden of outstanding public problems, will depend on developments outside of economics and MMT as a particular approach to it.

    I am not saying anything more than that these things are open to social determination. I think the gold standard and Bretton Woods to a lesser extent were attempts to have society behave as if it was at the mercy of “natural” market forces rather than ultimately being in charge.

    The authors of the paper do consider political institutions when they refer to fundamental institutional change, but their argument is that there is nothing in the JG mechanism that would bring about such institutional change. This is one sense in which I think the monetary regime is connected to the case for the JG. That is, currency sovereignty makes possible the implementation of a JG, despite the opposition of capitalists, in a way that is not true of some alternative monetary systems (because the currency issuer is in a position to dictate the terms on which it spends). Further, currency sovereignty makes possible other fundamental institutional changes (for the same reason). But again, it is only a possibility, as you point out, and as we have been discussing recently.

  6. Peter,

    “. . . but their argument is that there is nothing in the JG mechanism that would bring about such institutional change.”

    Actually, if we could somehow slip a decent JG by as “workfare,” then I think it could fuel political change. Once the Government gets a new program that works. That ought to tone down the cynicism about what Government can do and feed political support for other Governmental initiative. If we can get the neoliberal political lock loosened even a little than all kinds of positive feedbacks could occur.

  7. I believe some of the observations in Kriesler and Halevi are a bit overblown (the Arbeiter Front, for one); while in others they seem way too optimistic (the capital tax to finance fiscal expenditure).

    But, overall, I believe their doubts (and Kalecki’s) have a reasonable, if metaphysical, basis.

    What I don’t see is them (or Kalecki) considering the possibilities offered by MMT, as you have correctly highlighted. This could make a difference.

    One of the possibilities, and a fortunate one, is that it makes moot the issue of financing the fiscal expenditure required by a JG and, indeed, fiscal expenditure in general. So, at least, one has no need to worry about “great, big, new taxes”.

    “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.”

    With qualifications, I tend to agree with the statements above (but this could be wishful thinking). Full employment is technically, theoretically, possible; over time, full employment could undermine capitalism (then, again, perhaps not).

    Where I am really, really skeptical is here:

    “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.”

    Have you discussed this subject with the leading MMTers? Even if they have not written about it, they might have considered some of these things already.

    Unfortunately, neither I rank myself with them in knowledge, nor have I any answer, even at the level of hunch.

  8. Magpie, on your point of skepticism, it might partly be caused by looseness in my wording. What I mean by capitalists not being able to influence “the terms on which” the government spends is that a sovereign currency issuer can dictate the duration of its debt and the rate of interest paid. This is most clear in the MMT “general case” but even under current arrangements this appears to be the case. To quote Scott Fullwiler:

    In short, the orthodox concept of fiscal sustainability is flawed due to its assumption that a key variable—the interest rate paid on the national debt—is set in private financial markets as in the orthodox loanable funds framework. On the contrary, as a modern or sovereign money (Wray, 1998, 2003) system operating under flexible exchange rates, interest rates on the U.S. national debt are a matter of political economy (Fullwiler, 2005, 2006).

    Interest Rates and Fiscal Sustainability

  9. “Magpie, on your point of skepticism, it might partly be caused by looseness in my wording.”

    Or maybe I am unduly pessimistic. That is a possibility, too, you know.

    Like I said, maybe the “old-timers” (well, none of them is really old, or not much older than me, in any case!) have thought of this and have some ideas.

    I suppose it’s a matter of exploring possibilities.

  10. Given that the abandonment of full employment was sold in two ways 1. fiscal constraint 2. NAIRU I too am pessimistic about the chances of MMT changing things. Sure, it addresses the first. But in the last few decades it has been monetary policy that controls the economy. And the public seems quite content to have the central bank hike interest rates whenever the talking heads tell them they’ve reached the natural rate and inflation is coming around the bend.

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