Brendan Cooney at kapitalism101 has posted a long but interesting interview with Andrew Kliman, author of Reclaiming Marx’s Capital and, more recently, The Failure of Capitalist Production, in which he argues that a falling rate of profit underlies the current crisis. This position is presented primarily in opposition to Marxian underconsumptionist arguments but perhaps also is pertinent to other theories emphasizing demand deficiency. The interview got me thinking about various ideas not strictly related to the interview. I thought I would share them here. They are along similar lines to earlier posts on the social potential I see in sovereign currencies (for example, here and here).
Kliman stresses the role that a collapse in capital values plays in reviving the rate of profit in Marx’s analysis of capitalist crises. He notes there was a strong revival in the rate of profit prior to the sustained postwar capitalist “golden age”. He also observes that deficit expenditure did not play a major role in the postwar recovery. The massive government spending of the war was cut back dramatically in peace time and followed by a decade of strong investment-led growth. From the perspective of modern monetary theory, the two occurrences – deficit expenditure followed by a private investment boom – are consistent with each other. The massive wartime deficit spending – the US government essentially took over half the economy at one stage – corresponded, as a matter of accounting, to a massive increase in non-government net financial assets, enabling strong investment demand without recourse to large private debt burdens for some time after the war.
Although a decimation in capital values will revive the potential rate of profit, from a Kaleckian or Keynesian perspective it will also be necessary for a revival of autonomous expenditure if the potential profitability is to seem realizable to firms. For one thing, the level of confidence is likely to be adversely affected by substantial capital destruction. The devaluation of capital is also likely to be accompanied by falling output prices. The destruction of capital values will enable further centralization of capital, but in itself this will not kick start the recovery. The kick start will also require new demand, more specifically autonomous demand. The injection of autonomous demand could come from private investment, but equally it could come from government expenditure (or, for an open economy, exports). In terms of realizable profitability, it doesn’t matter which. In the aftermath of a crisis, there is no guarantee that an Austrian remedy of liquidation will revive private investment very quickly, or even at all, in the absence of decisive fiscal measures.
Combining the two insights, a sustained capitalist recovery seems to require two conditions to be met: a revival of the (potential) rate of profit through capital devaluation (Marx) and a strengthening of autonomous demand (Kalecki, Keynes). In the initial instance, the required autonomous demand will likely need to come from government expenditure when, as in the Great Depression, the stagnation is global.
In considering what is needed to get out of our present malaise, an important distinction that perhaps has not been as recognized as it could be in Marxist thought (or in most schools of thought, for that matter) is the one between governments who are sovereign currency issuers and those, most notably member governments of the EMU, who are not. This can lead to an inappropriate lumping together of private and public debt.
The distinction is significant because for sovereign currency issuers public debt is not financially problematic, although clearly it can be a political issue. A government that is a sovereign currency issuer can set interest rates on its own liabilities as a matter of policy. All that matters for such a government, at a macro level, is the inflationary implications of whatever spending it undertakes and interest obligations it incurs. There is no need – other than politically – for the currency issuer to match its spending with borrowing. It could simply spend and allow reserves to mount in the banking system, earning (if the government so determined) zero or low interest. The situation is different in the EMU, where interest rates on sovereign debt are subject to market pressures.
An important implication is that sovereign currency issuers can initiate economic activity through spending that may – but need not – be in the interests of capitalists. If the activity does not add to profitability – for example, it might involve a budget-neutral provision of free goods and services – capitalists would no doubt oppose it, but they could not undermine such policies through an influence on interest rates on sovereign debt. This, of course, does not go against the Marxist perspective, since essentially such policy involves an overriding of the logic of capital and potentially a move toward socialism.
Politically, I think there is a potential to employ sovereign currency in a socially transformative way, because it gives society control over the extent to which the logic of capital is permitted to hold sway, if at all. In this sense, even revolution could be seen as a reassertion by society of its prerogative to determine the course of economic activity rather than be subservient to the dictates of the profit motive and the logic of capital. This is precisely the authority at the disposal of a sovereign currency issuer. It is up to us to compel currency-issuing governments to use this authority in a socially and economically progressive direction.
Perhaps it is a tacit awareness of this possibility that has seen, in the history of capitalism, numerous attempts to tie currency issuance more closely to the logic of capital – most notably, the gold standard, Bretton Woods and the Eurozone’s common currency – because, if successful, it places government in a capitalist straitjacket.
All these attempts to tie currency issuance more closely to the profit motive have proved highly unstable. This is to be expected. If we tie the currency to the instability and convulsions of capitalism, we just end up with an unstable currency as well. It may be that the recourse to flexible exchange-rate fiat currencies represented a major concession on the part of those who wished to chain society to the dictates of capital. A key to greater economic democracy is in our grasp, and ultimately we can take it as far as we like.
I see policy proposals such as the basic income or a job guarantee broadened over time to amount more or less to a participation income, in a similar light. They are far from being panaceas. But I think such policies would help to set in place a dynamic in which we can break away from the wage labor relation and the private ownership of the means of production to the extent we deem it appropriate. Under a common currency arrangement or gold standard, such policies are vulnerable to bond vigilantism, but this is not the case in a modern money system. In the latter, it becomes a question of who will apply the greatest democratic pressure on the elected government. Whatever we demand, democratized money can be a mechanism to help bring it about.