An effect of being trained in mainstream economics but then encountering alternative approaches is to experience a growing realization — or at least a creeping suspicion — that most of what has been taught is the opposite of the truth. Even when the story told contains some truth, it is likely to have been turned on its head. Thanks to Kalecki and Keynes, for example, it becomes clear that demand (spending) determines supply (income), including in the long run. Spending, in a monetary production economy, must come before production can commence. Thanks to Post Keynesians, it becomes evident that loans create deposits, not the reverse. There could be no deposit prior to the decision to extend the first private or public loan (unless through government spending). Thanks especially to Sraffians, it has been established that profit cannot be a remuneration for (marginal) productive contribution. We can conceptualize profit as unpaid labor (Marx) or due to ownership (Sraffians, Post Keynesians).
An observation due to Modern Monetary Theory (MMT) that sometimes meets with resistance, though in my view is convincing, is that government spending or lending is logically prior to the receipt of tax revenue or government borrowing. This is a recognition that, from inception, government must issue its currency (spend or lend) before reserve accounts can be debited.
I often ponder this and other aspects of MMT in relation to Marx. In this regard, a statement made by Yanis Varoufakis in a fascinating presentation recorded in May 2013 caught my attention. Here, I will use it as a springboard for a brief consideration of Marx in relation to MMT on the question of fiscal policy, without intending to imply that Varoufakis would necessarily agree with the interpretation (or with MMT, for that matter).
Toward the end of the first part of his presentation, Varoufakis sums up “some of the insights … Marx’s perspective has bequeathed us and which are essential in our struggle to make sense of the world we live in and to effect it” (21:27 – 21:45). The first of these insights is the one that particularly caught my attention:
We live in a society which is procuring the fallacy that wealth is privately created and then appropriated by taxation through the state, when Marx so beautifully explained to us — guided us to — the truth of the opposite, that wealth is collectively produced and privately appropriated. (‘Confessions of an Erratic Marxist’, 21:51 – 22:14)
This view of Marx seems not only consistent with MMT’s position on fiscal policy but perhaps goes a step further. For Marx, surplus value (profit) and wealth are produced and accumulated in accordance with a social relation (capital/wage labor) in the context of property rights and laws instituted and enforced by a collective entity, the state. The production process, which draws upon public infrastructure, requires cooperation to produce commodities whose values are quantities of socially necessary (not individual) labor. Marx explains this through his central distinction between labor, which cannot be commodified, and labor power, which is the capacity to expend effort in the labor process.
As Varoufakis observes in the lead up to the quoted statement (15:06 – 18:08), if labor could be truly commodified, workers would be reduced in effect to machines and, like machines, would have no capacity to vary their expenditure of labor power in response to conditions of employment or in rebellion. There would be no additional value to be had in extracting extra effort from workers, because, like machines, they would be automatons. And, therefore, like machines, labor would merely pass on its preexisting value (which, as a commodity, it could then possess) to the final commodity. Any capitalist who attempted to sell a commodity at a price above this mere transfer of preexisting value could only succeed at the expense of other capitalists. In aggregate, no surplus labor could be performed, and therefore no surplus value could be appropriated.
Because in reality labor cannot be commodified, capitalists are able to appropriate surplus value to the extent that they (or their agents in management) can wring labor out of workers in excess of that required to reproduce the working class. And since this is not certain, there is additional value to be had by succeeding in the struggle. And the greater the success, the greater the surplus labor that is performed. It becomes possible to drive workers beyond the point necessary for their own reproduction.
Since surplus value is the result of a collective, not private, effort, it makes no sense to speak of the state (the collective entity) as appropriating tax revenue that is first privately created. To the contrary, capitalist production is social. Capitalists privately appropriate part of what has been created collectively. Taxation is then simply a withdrawal of some of the collectively produced surplus value that subsequently flowed into private hands.
This implies not only that the state is without a revenue constraint (MMT) but that it does not require privately created surplus value and wealth to be produced before it can spend or tax, simply because privately created surplus value does not exist under capitalism. Value is produced collectively, and then distributed privately as wages, profits and benefits or withdrawn through the payment of taxes.
Nor is it true to say that collective production must necessarily take place before the government spends. This is just an aspect of the broader point, brought out by Kalecki and Keynes, that under capitalism decisions to spend are prior to production, and demand determines output.