A perennial question for Marxists is how to overturn capitalism. Will institutional changes that improve the lot of workers but fall short of ending capitalism immediately help or harm this cause? To the extent that social struggle is a learning-by-doing process, it may be that the securing of small gains can whet the appetite for more significant gains and that institutional reforms of a transformational nature can place revolution on a more secure footing if and when it does occur. But there is also the possibility of complacency in which workers come to tolerate capitalism so long as their own situation is not so dire.
The increasing prominence of modern monetary theory (MMT) has once again brought the perennial question to the forefront for some socialists. Is knowledge of MMT going to make it easier to extend the life of capitalism? What should a Marxist make of the theory?
In my view, there are several aspects to consider:
- the correctness of MMT;
- the broad analytical applicability of MMT;
- the implications of MMT for capitalism.
Correctness. My own view is that MMT is correct on the points it explicitly addresses. To summarize some of these: (1) It identifies authority (and especially the authority to tax) as underpinning acceptance of the currency. (2) It shows that so long as the state sets at least one price in the economy (such as the minimum wage), this will influence other wages and prices and, in doing so, link the value of (or difficulty of obtaining) the currency to an amount of labor-power. (3) It makes clear that the currency issuer must issue the currency before it can be taxed back out of the economy or used to purchase government bonds. (4) It emphasizes that the real constraint on a currency-issuing government is defined by the labor-power, natural resources, raw materials, plant, equipment and accumulated knowledge that are available for sale in the currency of issue. (5) It points out that since a currency-issuing government faces no revenue constraint, whereas members of non-government do, it will typically make sense for reasons of financial sustainability for government to spend somewhat more into the economy than it taxes back out so as to enable non-government as a whole to spend less than its income and retain for itself some protection against uncertainty. Of course, the growth in overall demand will still need to be kept in sensible relation to the capacity of the economy to produce. (6) It demonstrates that the elimination of involuntary unemployment can only be assured by the currency-issuing government guaranteeing jobs to those who cannot otherwise find employment. Other aspects of the theory could be added, but mentioning the foregoing are sufficient for present purposes.
Applicability. The distinction between government and non-government applies to both capitalism and socialism. So long as a currency system remains in place, the capacities of a currency-issuing government identified by MMT will apply fully under socialism. An implication – whether this is the intent of the modern monetary theorists themselves or not – is that socialism is technically feasible.
The theory also clearly applies to capitalism. But does it suggest that capitalism can successfully be preserved?
It may be that MMT – as with non-Marxist economics in general – cannot, at least at present, answer the question to the satisfaction of a Marxist because a theory of value has not been fully integrated into the framework.
This is not to say that modern monetary theorists are necessarily opposed to Marx’s theory of value. At least one leading proponent has argued that a theory of value is necessary. Personally, I think that it should be possible to integrate Marx’s value theory into MMT, and some modern monetary theorists have touched on aspects of value in their analysis of the monetary system. Most notably, currency value has sometimes been explicitly linked to labor time (for example, here and here). This seems to imply a broader role for value. But if so, this role has not yet been fully fleshed out.
Implications. With the role of value remaining somewhat underdeveloped, MMT in itself appears to be silent on the viability of preserving capitalism. It is unclear whether this silence is due to an implicit presumption that capitalism can be preserved (with the question, as a consequence, never arising) or, to the contrary, it is thought that MMT-informed policy and institutional changes will tend to move the system toward socialism. Possibly there are proponents who hold to each of these views.
In any case, here we can consider MMT’s implications for capitalism from a Marxist perspective.
For Marx, the achilles heel of capitalism is the ‘law of the tendential fall in the profit rate’. As shorthand, I’ll just refer to this as the ‘profit-rate law’ or ‘law’.
The basic idea of the profit-rate law can be stated very simply. The rate of profit, in value terms, is given by the ratio of surplus value s to total capital C invested in production:
r = s/C
Hypothetically, the maximum rate of profit would occur when capitalists received all new value created in production, amounting to L = v + s. Here, L is total productive employment measured in hours of socially necessary labor and v is variable capital (the amount of value going to workers). So the maximum conceivable profit rate would be:
rmax = L/C
Marx notes that the value created by one hour of socially necessary labor is always the same in real terms at the time the labor is performed, irrespective of variations in productivity. This is an important macro principle. It means, for instance, that if the level of productive employment remains constant while productivity doubles, the production of individual commodities will on average involve half as much living labor as before, causing new value per unit of output to halve. There will be twice as much output of use values but the total new value created will be the same as before.
To see the relevance of this to the maximum rate of profit (L/C), suppose the level of total productive employment remains the same from one period to the next. In that case, total new value added (L) will also be the same in both periods. Meanwhile, if net investment has occurred, C will increase unless the prices of the elements of C devalue sufficiently to leave C unchanged. Without sufficient capital devaluation, the maximum possible rate of profit will fall. More generally, for given distribution, the rate of profit will fall whenever the growth in L slips behind the growth in C.
Marx argued that sufficient capital devaluation is unlikely to occur over a phase of capitalist expansion and growth. As a result, the maximum possible rate of profit will fall over the expansionary phase. Capitalists can attempt to maintain the rate of profit by taking a larger and larger share of value (increasing the rate of exploitation s/v). But eventually it becomes impossible to increase the share any further, because L places an upper limit on how much surplus value can be created in real terms. Unless capital devalues sufficiently, the rate of profit will eventually fall.
As is well known, the functional role of crises in Marx’s theory is precisely to cause a collapse in capital values. This cheapens investment and boosts the rate of profit, setting a precondition for a revival of private investment. From an MMT perspective, there would still need to be sufficient demand, overall, for the investment recovery to be forthcoming. The rate of profit remains only a potential unless it can be realized through exchange. But, in any case, without a collapse in capital values, a recovery of private investment (as opposed to public investment in not-for-profit activity) would fail to occur.
If Marx’s profit-rate law is taken to hold, application of MMT-informed policy would seem broadly to suggest two possible social paths:
1. If government attempts to limit capital losses, Marx’s law dictates that ongoing growth will cause the rate of profit eventually to fall below the minimum rate sufficient to induce private investment. If so, an ever-increasing proportion of investment and production will need to occur on a not-for-profit basis, through public spending and public sector activity. This is perfectly feasible, as MMT shows, but would in effect be a transition to socialism and a failure to preserve capitalism.
2. If, instead, government permits crises to have their full impact on capital values while sheltering affected workers in the job-guarantee program, crises would bring a revival in the rate of profit and periodically restore a necessary precondition for a recovery in private investment. Capitalism would be much more volatile than now, but purely as a matter of the economics, the system would be technically feasible and could continue indefinitely. The question would then be one of political viability. Workers, in far higher proportion than now, would lose jobs during crises. Although they would not suffer involuntary unemployment, they would still have to tolerate frequent disruptions and the lower pay entailed in accepting a job-guarantee position. Capitalists, for their part, would have to stomach large capital losses.
A joint consideration of MMT and Marx therefore seems to suggest that – via path 2 – preservation of capitalism is technically feasible. While it might be unpopular, it would not be as intolerable as pursuing path 2 in the absence of a job guarantee (which might occur if right-wing policymakers acted without MMT knowledge of state money or, perhaps, out of a sheer lack of concern for the destructive social effects of such policies).
But it also seems possible that path 1 could prove to be the more popular one, especially among workers if they possessed a rudimentary understanding of MMT principles. The prospects for socialism would depend on the capacity of workers to mount grassroots pressure on government to nationalize failing industries in cases where the output produced was socially beneficial and to open up new branches of not-for-profit production in instances where the output of dying industries was no longer wanted. Each significant step taken in this direction would increase the proportion of activity that occurred on a not-for-profit basis and constitute a move away from profit seeking.
In view of these considerations, the likely social consequences of a rise to prominence of MMT do not seem to be as clearcut as may often be supposed on the left. Granted, it does seem possible that knowledge of MMT could be used to preserve a highly volatile form of capitalism. But it is far from obvious, at least to me, that this course would prove more popular than the alternative.
The alternative path would not rule out immediate revolution, when and where this is politically possible, but admittedly does carry a risk of complacency to the extent that life becomes more tolerable with each step taken.
Even so, if Marx’s profit-rate law is correct, episodes of complacency along this alternative path could only slow the rate of progress, not ultimately prevent the demise of capitalism.