Profitability or Revolution

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.


27 thoughts on “Profitability or Revolution

  1. Just to observe that private property of the means of production does not define capitalism, therefore post-capitalism is not characterised by non private property.
    Roman and feudal lords detained private property of means of production yet no capitalism at their times.
    Capitalism is better (correctly?) defined by employer ownership of the firms, or, equivalently, by the prevalence of the employer-employee relationship.
    Post capitalism is then characterised by the vanishing of such relationship.
    Private versus public, or even the concept of property of means of production is a question for thereafter.
    Of course evolution into post capitalism requires adequate currency management!

  2. Magpie, thanks for your thoughts. It’s good to hear Kliman’s book is receiving a positive response. Like you, I am yet to read it (but will do so), although I have read closely a long report he produced prior to its publication that I think informs the core argument concerning the falling rate of profit. I have followed Kliman’s work closely since reading his Reclaiming Marx’s Capital and think his contributions are important. I also read whatever I can find that is published by other Marxists adopting the “temporal single-system interpretation” (TSSI), especially Alan Freeman.

    My post here is not intended as a criticism of Kliman’s actual argument concerning the rate of profit. I also am not objecting to his dismissal of underconsumptionism, which I think he is correct to regard as an incomplete argument. As he points out, it is not enough to suggest workers’ consumption power is limited when other sources of demand might not be. At the same time, this observation does not rule out demand deficiency, as Kliman acknowledges in the interview. Kliman’s main point is that the root cause of capitalist crises is falling profitability. In his view it is profitability, not demand, or any other factor (e.g. financialization, neo-liberalism, inequality, etc.) that is at the root of the problem.

    I am open to this possibility. I agree with Kliman’s view on financialization. I think financialization is an important part of the story, but is not the root cause of the crisis. If Kliman is correct in his measurement of profitability (there is disagreement in academia on how to define profitability) and his empirical finding that, consistent with Marx, profitability did actually tend to fall in the period leading up to the crisis, then an increasing resort to speculative and ponzi behavior in the financial markets can be seen as symptomatic of that. A paucity of profitable productive investments can be argued to encourage the seeking out of higher returns through financial speculation rather than investment in real production.

    Kliman points out that explanations of the crisis emphasizing neo-liberalism, financialization, inequality, underconsumptionism or overall demand deficiency suggest a solution can be found within capitalism. I agree that this is the implication drawn by many on the liberal and even Marxian left. For example, most MMTers see deficit expenditure and effective regulation as a way of making capitalism work better if assessed on its own terms.

    But, as you’ve argued yourself in previous threads, this can’t be a satisfactory solution, politically, from a Marxist perspective, because its purpose would be to maintain profitability for capitalists; i.e. it would involve class-interested policies to preserve a system for the benefit of one class.

    On this point, I agree politically with Kliman. But I think currency sovereignty opens the way not just for preservation of capitalism but could instead be exercised to undermine or transcend capitalism. If MMT is correct that in a modern money system the interest rates paid on government liabilities are strictly a matter of policy, it means:

    (i) Zero or even negative growth (and therefore a more environmentally sustainable economy) is feasible alongside full employment;

    (ii) Zero or minimal profit is feasible;

    (iii) Production not on the basis of the wage labor relation is feasible;

    (iv) Public ownership, to the extent desired, is feasible.

    In other words, in a modern money system, productive activity does not need to be viable for capitalists, and in fact fiscal policy could be used in such a way as to annihilate profitability. This could be done by increasing the role of the public sector and limiting the sphere of capitalist activity. This would involve higher taxes, more public provision of free goods and services, and so on.

  3. PeterC,

    Perhaps the best for me would be to withhold an opinion until I have read Kliman’ s latest book (it’s been highly praised, that much I can say right now).

    In principle, I tend to share the underconsumptionist / overinvestment view, for 3 reasons:

    (1) the data I have seen seems to indicate it is valid,
    (2) I haven’t seen any evidence to the contrary.

    The third reason is a bit more difficult to explain. Have in mind that I am no authority or scholar (so, feel free to shatter these opinions, if that’s the case), but it is my belief that Marx’s model was postulated under the most favorable scenario for capitalism (the one under which bourgeois economists believed capitalism would show its inherent goodness).

    Marx’s discovery that, even under these favorable conditions, capitalism was unstable was a great achievement.

    However, we have witnessed abundantly clear lately that these favorable conditions do not hold true and even mainstream/conventional economists openly recognize this; this only strengthens Marx’s general views (from “capitalism sucks big time” to “it sucks even more than Onkel Karl considered”).

    In other words, as I see it, the old guy was too optimistic: he was way too generous with capitalism.

    But if this strengthens Marx’s general view, it should weaken the case for the tendency of profit to fall.

    In any case, I better read Kliman’s book. I understand, it should fill the vacuum regarding the empirical aspect (that is, it should address reason 2).

    Regarding this passage:

    “My own view is that the recourse to flexible exchange-rate fiat currencies was actually 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 very broadly conceived to amount more or less to a participation income, in a similar light.”

    Frankly, the recent debate on JG/coercion has left me much less enthusiastic.

    Otherwise, I share your views, especially in what refers to how public spending boosts profits.

    I’d also like to add that, it seems to me, the accumulation of non-government financial assets (many of them paying interests) made possible by public deficits is not necessarily equally distributed. This should also increase profits, without requiring any real physical investment.

    (by the way, I’d like to know your views on the matter of banking and financialization, in general)

  4. Peter…I really need your help. I have an Austrian influenced colleague here at UMKC who I have trouble debating against. Being at UMKC, he knows about MMT as all of us do but is not influenced by it whatsoever. I think as a Marxian and someone who understands MMT, that you can help me rebut the arguments he’s making. Anyone else who has something to say may do so here.

    As an Austrian he does not like fiat money as he feels it contributes to booms that are unsustainable. His personal preference is a 100% reserve ratio that ultimately returns the market to a purely loanable funds kind of framework. Again, this would prevent the sort of unsustainable booms that, as any good Austrian would argue, fiat money ultimately delivers. Of course then I approach him by arguing that this is a purely ideological, personal preference and that he doesn’t have an argument against say a politically pragmatic sort of approach that MMT wants to deliver through a Job Guarantee. He then asks me what guarantee I would have that it wouldn’t generate inflation. He says two things can happen: if we give the workers to do something akin to digging holes and then filling them back up, it would generate inflation…and this is akin to simply giving people money through unemployment benefits, for example(more on this in a moment). Or, they can simply produce something that nobody wants, and that would also generate inflation. He says that MMT does not take into account these factors. I can wave my hand as any good Persian does and say that although it is plausible that something like this can happen that it would be a special case and not the general one. I make the general argument that MMT argues that you can’t have inflation unless you continue spending beyond full capacity, but he simply does not accept this argument. So if possible, as you’re reading this, try to engage this argument not from the standard tact unless you absolutely must disagree with his statement.

    So then I get into the argument of “where’s the inflation” with our current system of unemployment benefits. He said the CPI was recently at 2.8/3%, which surprises me and I haven’t confirmed to see if he was correct, but I blamed it on rising commodity prices. He argues that if we have inflation before any sort of full employment program, how can I argue that there won’t be inflation if we do institute one. Before I continue, a note: I do argue at one point that it is disingenuous for him to argue about any inflation through a JG when currently modern finance and the the power dynamics within capitalism can itself generate inflation, but he argues two things: 1)ultimately this goes back to the issue of fiat money, and 2)I can’t bring up something else because I’m ignoring his argument…so this frustrates me.
    Back to discussion…I argue that any inflation you see today through commodity prices is ultimately a result of the institutional dynamics within commodity markets, and particularly through speculation in futures markets, and has nothing to do with government fiscal spending, per say. The futures market can have unfortunate feedback effects of causing people to hoard, thereby making the prices of these commodities go even higher. I argue of course its a question of adequate regulation, through position limits or by regulating the OTC market. He then argues that side bets can always occur no matter what sort of regulation you put into place, and so it goes back to where he started, that ultimately its a question of whether or not you have fiat money(explained below), and that I still haven’t come up with any sort of guarantee that there wouldn’t be inflation.

    Oh, and if I haven’t asked enough things, I forgot another line of argument he/I made related to fiat money. He said that in a fiat monetary system that people are always looking for an intertemporal transfer of wealth from the present to the future through commodities or other means, which can generate inflation, sometimes harmful if we’re talking about oil or wheat, and also then a loss of output. I argue that with a JG that there would inherently be less uncertainty and less of these sorts of transfers…anyway at this point I’m way beyond confused because then he still wants me to “prove” this…

    If you can kinda address that mess I wrote above in any sort of way, I’d appreciate it…but the main thing to focus on is his insistence that there wouldn’t be inflation, I can always hand wave but even for me that isn’t enough, even if ultimately he’s not being intellectually honest.

    one last thing, this is related to the stuff you wrote here because he says that we will have more social democracy if you have a 100% reserve ratio as it prevents those in power from abusing the fiat monetary system. Which is funny, because he’s arguing against power from the position of an austrian and not a marxist, so he’s as pro-capitalist as you can get I suppose. I don’t know man, I’m confused.

  5. Deus,

    Not exactly saying that this may immediately help you with the dilemma you are having with your Austrian friend…. but “inflation” within the MMT paradigm is something that has interested me also. perhaps look at this link and view the video there.

    I’m not claiming the conclusions there are irrefutable, but if you can see via the video how some of the MMT leaders view “inflation” within the MMT paradigm, it may be an area of interesting future formal study/development/investigation for a student within the MMT paradigm.


  6. Thanks Matt, but I’ve already seen that video, and unfortunately that doesn’t really help.

    Ultimately I think my Austrian friend is being intellectually dishonest, because the question of inflation is constantly brought up when we bring up some of our grand solutions. It’s legitimate for him to say that everything needs to be incorporated into our models, but on the other hand we have so much government expenditure out there, including transfer payments, that to raise the issue here on an something that, as Wray calculated, costs a very small amount compared to some of the expenditures we make elsewhere(not that cost is the issue here, but trying to determine inflation if any). On some level I want to say the onus is on him to prove inflation, however small, can occur, for this very reason. Of course he uses deduction and not the real world to “prove” to me how inflation would happen, but it’s not something I can easily dismiss either…somehow he one-ups me. On another level I want to say”god forbid we get 1% INFLATION by letting the unemployment have jobs and an income” but that’s going beyond economics. I’m just stuck here, I know I’m debating him on his presumptions but I can’t help but think he’s got some legitimate beef with me and others to incorporate this stuff into the model.
    His preference for a working loanable funds world is something I can easily attack, because I believe that fiat money gives us a special avenue towards a better working social democracy that peter does…but the details bother me in terms of the economics/inflation because that is what I am supposed to flesh out as an economist. I just don’t know how to even approach this…on what level does it go beyond numbers and touch societal values? That’s the ultimate crux of the issue here as well…because we can handle a little inflation, a small cost to pay as a result of a fully employed economy.

    I think Peter can help me here if he would be willing…

  7. Deus-DJ, thanks for your contributions. I am certainly willing to help (or at least try). Hopefully others will be, too. It might be a while before I respond, though. I’ve just spent a few hours on my most irrelevant post ever (!) after responding to Magpie’s comment and now need to sleep. But I will attempt to address your comment in the next day or so.

  8. “I’ve just spent a few hours on my most irrelevant post ever (!)”

    Peter, you are the only blogger I know of that can make boondoggling productive with such ambiguous clarity. 😉

    As a new reader, I’ve really been enjoying your perspectives, please don’t ever change. Fantastic stuff.

  9. PeterC,

    Thanks for the long reply. Many things to think about.

    Just two comments. Regarding this:

    “Kliman’s motive in criticizing explanations of the crisis that are based on neo-liberalism, financialization, inequality, underconsumptionism or overall demand deficiency is that if these explanations are accepted they suggest a solution can be found within capitalism.”

    I had guessed as much and if this is what motivates the emphasis on falling profits, then I think it is an emphasis misplaced.

    True, insufficient demand could be patched up, supplemented, as needed. This does not mean that it will always be. It was not done at the beginning of the Great Depression, for one; and when it was finally done, it was very reluctantly.

    But we don’t need to go back to the Great Depression: we have seen current displays of aversion to this kind of government intervention in our own lifetime.

    Kalecki himself explained why.

    The example I always use (I have probably used it here, too) is the chronic cardiac patient who receives a pacemaker: every time a cardiac arrhythmia develops, the pacemaker could correct it. This does not mean the patient is cured.

    If the patient makes the mistake of thinking herself healthy, has the pacemaker removed, and goes for a roller-coaster ride, she will die when the next arrhythmia starts.

    But this is not important here.

    The second more substantial comment is this: could you advance some information on how Kliman assesses profitability? If you could, it would be most appreciated.

    Links to DETAILED papers/studies, statistics (Where do they come from? If they require transformations, the methodology: why and how?), that sort of stuff.

  10. Deus-DJ,

    The first thing you’ve got to do with an Austrian is work out what definition of Inflation, Saving and Investment they have in their head.

    They have exceptionally weird definitions of them.

    Probably the most useful propaganda coup of the existing ruling class is to redefine Inflation as a ‘rise in prices’ when really that is a ‘change in the standard of living’. Austrians then move that on to something to do with the money supply – which is nuts.

    If you have an ordinary person with a wage, renting a house (or renting the money to buy a house) and expecting a state earnings related pension on retirement and who just lives week to week with little savings then true inflation (wages and prices going up roughly in lock step) will completely pass them by.

    It doesn’t really affect businesses that much, who just push prices along at roughly the same rate as the wage share, investing in real capital as required. In fact inflation helps cover up business mistakes as you can offer recover them on the back of rising prices (as a lot of ‘property developers’ have found out in the last boom).

    Its instructive to see over the past forty years how the financial elite have tried to make sure that the ordinary person is affected by rising prices – forcing them to save for their retirement, destroying unions and suppressing the wage share.

    Why? Because true inflation rots debt – and therefore rots the asset from the point of view of the owner of debt.

    Genuine inflation hurts debt issuers the most. And they are currently in charge.

  11. Magpie: One key point of disagreement is over how to value past fixed capital investment when prices of capital goods are falling. If the rate of profit is calculated based on current prices, declining capital goods prices boost the rate of profit, even though when the elements of constant capital entered the production process they may have involved larger outlays than would now be necessary at the lower prices. Kliman’s position is that the rate of profit that matters to capitalists is profit as a return on their investment. In this view, a fall in capital goods prices boosts the rate of profit on prospective new investments but does not increase the profitability of past investments.

    In what Kliman calls a simultaneist, dual-system framework, you get “physicalist” results – i.e. the rate of profit is found to depend only on physical quantities. This is why Steedman concluded that Marx’s theory of value is “redundant at best”, etc., because from his perspective the rate of profit can always be determined without any reference to values once the physical quantities making up the real wage and specified in the production technique are known.

    The TSSI, as the name suggests, views Marx’s theory as dynamic (temporal) and single-system (meaning there is just one system that involves values and prices, not a separate system for each). In this interpretation, values and prices are both measured and comparable either in labor time or money, and values and prices are mutually determinative. Specifically, input prices are regarded as data that enter into the determination of the value of outputs. So input prices at the beginning of the production period enter directly into the values of outputs at the end of the period.

    If Marx’s theory of value is interpreted as simultaneist, labor-saving technical innovation cannot reduce the rate of profit (the Okishio theorem). If, instead, the theory is interpreted as temporal and single-system, Marx’s tendency for the rate of profit to fall stands.

    The best explanation is probably Kliman’s latest book. However, he also explains his argument in much depth in this long report. There used to be earlier drafts available for free, but this seems no longer to be the case. Chapter 7 of his earlier book also explains the disagreement between different theorists.

    One aspect of the TSSI that appeals to me, other than its replication of Marx’s results, is that it seems compatible with MMT and Post Keynesian views of capitalism as a monetary production economy in which production is first and foremost for profit (accumulation of value) not consumption. Values and prices are both monetary magnitudes (or labor-time equivalents), so money is integral to the analysis from the outset. The production process itself begins with capitalists outlaying sums of money for constant and variable capital, which is then worked in production with the hope of obtaining a larger sum of money at the end of the process through exchange. It is very similar, in this respect, to the view of Post Keynesian approaches, and always sees capitalist production and exchange as a dynamic process rather than being static and equilibrium based.

    There are other measurement issues as well. I think Kliman’s latest book may be necessary to assess those. For example, the treatment of income received by workers in the form of health insurance or other social expenditures. He touches on these points in the interview I linked to in my post, but I could not really form an opinion based on what was said.

  12. PeterC,

    For me, this situation is rather frustrating. I’m not frustrated at you, I want to make this clear, who has made a good effort of explaining the whole thing.

    Rather, I am pissed off at academic Marxist writers.

    My frustration derives from this: not a single one of the great classical economists was a mathematician. Not one. Certainly neither Marx nor Engels.

    The vast majority of their main immediate successors were not mathematicians, either (that I know, the only partial exceptions to this rule are Luxemburg and Trotsky, who did study some maths).

    All these people worked, reasoned and wrote in their own languages. Whatever hits or misses they had, they were achieved this way. They all, including the bourgeois economists, made good attempts to disseminate their ideas, so that at least readers motivated enough could make an effort to follow them.

    How come current Marxist economists find it next to impossible to express themselves in plain language? Do they assume that every Joe Sixpack is able to follow them? Or are they writing only for themselves?

    Without going further: compare this with MMT. We see big shot scholars spending their time writing blogs and newspaper articles explaining the basics of MMT to the wide public. They make their academic articles available, at least as working papers. They point to data.

    With a few exceptions (Stephen Reznick and David Harvey come to mind) most Marxist economists fail squarely in this regard. Another exception is the MIA, but it is not an individual effort and it’s focused on older literature.

    As it appears academic Marxist writers are too busy to write for the people, I think it falls upon Joe Sixpack to compile a list of free, popular oriented, resources for Marxists on the internet.

    Any links welcome.

  13. I’m flattered that you think I add color, Peter, and that you actually think it’s a contribution. And that works out well because lord knows this place needs more than ONE. You need to decorate this joint, especially now that we know you have dabbled in painting and protest art.


  14. Magpie, I forgot to mention that the data Kliman used for his long report prior to the latest book is also available at his blog:

    Link to spreadsheet file

    Regarding accessibility of Marxist writers, I think it is partly because Marx is difficult to read, which results in lots of different views over “what Marx meant”. As Tom Hickey, Jim O’Reilly and others have pointed out, Marx was a philosopher, and most with an economics “education” (myself definitely included) are not well equipped to appreciate the full nature of his work.

    I think the resources made available by Harvey and Resnick are excellent and Brendan Cooney is doing a great job at kapitalism101. Kliman’s book Reclaiming Capital is also written for general readers.

    I strongly agree with your sentiments concerning the MMT academics working hard to disseminate their ideas. It is a very important task. It does come at a cost for them, though. I remember seeing a video where Bill Mitchell mentioned a significant decrease in his academic output since starting the blog. It’s tough when there are only a small number of academics developing the theory to continue to do that while also disseminating the ideas. I’d imagine the resource constraints are similar in the case of Marxists. However, I think the MMTers have made the right choice. It has got them noticed more than otherwise, including in the academic sphere, and may help to attract more students to pursue the approach.

  15. Trixie, unfortunately my only artistic experience is the artistic license I took in suggesting I had dabbled in protest art. That post is a mixture of fact and fiction. Essentially true, but not in the details. Novel, yes. Screenplay, yes. Pretty girls on the station platform, yes. Harbor foreshore, yes. Mr X, kind of. Sweet sherry, no. Art, sadly no.

  16. Ok fine, Peter. But don’t expect me to be happy about it going forward.


  17. “Regarding accessibility of Marxist writers, I think it is partly because Marx is difficult to read, which results in lots of different views over “what Marx meant”. As Tom Hickey, Jim O’Reilly and others have pointed out, Marx was a philosopher, and most with an economics “education” (myself definitely included) are not well equipped to appreciate the full nature of his work.”

    I know. I myself have said pretty much the same things.

    See the third comment here:

    But then what do we do? Is Marxism only for fully trained philosophers, specializing in Hegel, who preferably read German, Russian and Polish at an academic level?

    No wonder the people who should know about Marxism don’t know shit about it.

    On top, any buffoon will claim whatever they want about Marxism: it is them who through the punches; Marxists don’t strike back, because, God forbid, maybe they are not interpreting Marx exactly.

    In any case, I will have a good look at kapitalism101.

    The idea I am thinking about is preparing a series of tutorials on simple topics.

    Something like Mitchell does: he picks a subject of current interest, gives the basics of MMT as it applies to the situation, with figures, and pointing to more complete formal treatments, for those with the time and inclination. Preferably something succinct.

    Roger McCain from the US used to have a tutorial on Marxist economics. It was clear, maybe a bit on the simple side, but it was brief (part of an undergraduate principles course/book, if memory serves). It was more of a theoretical nature, with little immediate connection to what people actually experience.

    Or Marta Harnecker, a Chilean sociologist, had a basic book in Spanish. It was called Principios elementales de materialismo historico (elemental principles of historical materialism) if I am not mistaken.

    It, like McCain’s tutorial, was clearly written but it was much more ambitious and much more extensive. Pretty much the same comments apply to this book.

    Have you seen them?

  18. PeterC,

    I’ve watched the 3 first videos at kapitalism101. That was a terrific surprise! It seems quite promising.

    Thanks for the link.

  19. Magpie: I haven’t seen those books you mention, but I like your idea of simple tutorials. Maybe see what is already there at kapitalism101 and then help fill in gaps. I have been intending, basically from the start of working on this blog, to at some point start doing some simple posts on Marx, but I have been holding off till I am more confident of how it fits (assuming it does) with MMT. But maybe I should take the same approach as I have been doing with the ‘job or income guarantee’ topic and ‘transition to post-capitalism’ topic. That is, just start putting up some exploratory posts with no claim to authority and see where the discussions take us. Very able people have joined in on the other discussions, so maybe it’s the way to go. I am always reticent to write if I don’t know what I am talking about (!), but maybe less ego preservation (following jrbarch’s lead) and throwing caution to the wind (not sure this was jr’s intended meaning …) will help move things along. In any case, I think it would be great if you do start putting together something at your blog by way of basic tutorials. Excellent idea.

  20. Trixie: Awesome. We need more tantrums at heteconomist. Does this mean you are an artist? Suggestions for a decent theme, etc., for the blog would be welcome. A friend set this up so I could start blogging. That’s how “advanced” my computer skills are. He said there’s “heaps” I can do by way of add-ons and so forth. As can be seen, I have not done anything.

  21. Deus-DJ: Sorry for the delay in getting back to your comment. I’ve been flat out the last couple of days, mainly due to doing too much boondoggling.

    The following is only a very partial response to what you wrote, and I don’t know how satisfactory it will be, so feel free to critique it (from your friend’s perspective) and ask further follow-up questions.

    I’ll note in passing that I agree with Neil regarding the definition of inflation and also regarding how much of a priority should be given to preserving the claims on real wealth of rentiers. But in the rest of this comment, I’ll mostly try to take your friend’s arguments at face value (at least the ones I address).

    For now I will focus on his concerns about a job guarantee. You wrote:

    He says two things can happen: if we give the workers to do something akin to digging holes and then filling them back up, it would generate inflation…and this is akin to simply giving people money through unemployment benefits. … Or, they can simply produce something that nobody wants, and that would also generate inflation.

    To me, this is a false dichotomy since the JG workers might also produce something that some people do want.

    But let’s take each of his scenarios in turn before getting to that. Actually, we don’t need to take them in turn, because they amount to the same thing. If workers do something akin to digging holes and filling them back up again, or in some other way produce something that “nobody wants”, they will add, at minimum, zero value. I say “at minimum” because this activity may have considerable benefits for the physical and psychological well-being of the worker (especially in the second scenario), which is significant in itself, or it may be positive for the worker’s children who see the parent going off to work, or it may benefit capitalist employers by keeping the worker in “good” work habits, etc. So there may be social benefits even if the output is supposedly something that people “don’t want”.

    Concerning the output itself, if we accept for the sake of argument that the activity adds zero value, one point I’d make is that this is better than many activities that, while treated in the National Accounts as of zero or positive value, in actuality are not socially beneficial at all.

    For example, if the experience of being unemployed rather than a JG worker results in family breakdown, crime, etc., there may be an addition to GDP (lawyer’s fees, broken window repairs, rifle sales, etc.) but a decline in real quality of life.

    Another consideration is what the worker was doing before becoming unemployed. It may be that they were causing harm in various ways, either directly or indirectly (e.g. environmental destruction, armaments production, disruptive financial speculation, teaching Econ 10 at Harvard, etc.), compared with which producing zero value would be a considerable improvement.

    As Neil mentioned, there will be a one-off increase in prices as a result of hiring workers in a JG rather than paying them a lower unemployment benefit or denying them an income altogether, but inflation is a continual increase in prices, not a one-off increase. But, of course, your friend may believe inflation is an increase in the “money supply” per se, including one-off increases. If so, there will be “inflation”, but why should anyone care about “inflation” if it is defined in this way?

    Personally, I think the root of all this is that Austrians, on the whole, don’t seem to like downward redistribution of income. My impression is that it is not really about efficiency or inflation or anything else. They just don’t want income to be redistributed from the rich to the poor.

    Why do I say this? Because markets only answer to demand backed by purchasing power. In my opinion, it is a nonsense to say that the JG workers would produce stuff “nobody wants”. What Austrians really mean when they make this claim is that the JG workers would produce stuff for which there is not currently a market demand. Aged care for people who otherwise couldn’t afford it. Boondoggle! Community services for the poor. Boondoggle! Etc.

    And then of course there are the activities designed to clean up the mess caused by capitalism, such as environmental destruction and social harm of various kinds. Boondoggle!

    Another aspect is that Austrians don’t seem to like democratic determination of production. They like the market because it is ‘one dollar, one vote’ rather than ‘one person, one vote’. But I would argue that the latter is a more accurate reflector of “what people want”, especially when the distribution of income is very unequal. Austrians can say all they like that the powerful capture democracy, but the powerful capture markets to an even greater degree. Despite the powerful capturing democracy, the poorest in most developed economies have won access to health care. They could never have afforded this if left to the market. So I would say the market is more captured by the powerful than democracy. Ditto for public education and the provision of various other necessities and services to which the poor have gained access through the (imperfect) democratic process.

    So, in other words, I don’t see how your friend can defend his claim that JG workers will produce stuff “nobody wants”? It may be that, even if there is a one-off increase in prices, there is an unmeasured increase in real living standards that more than makes up for it. Here, of course, I am humoring the Austrian denial of the possibility that output will respond to any addition in demand rather than the effect being felt purely through “inflation”. By definition, there is unemployment, so we are not at the limit of production. If the extra demand from JG workers stretches the current employment of labor in certain lines of production, the JG workers may be employable in some of these lines of production. But I note your point that he doesn’t agree with this reasoning.

    There is still a lot of other stuff you raised that I have not yet addressed.

    If you haven’t seen them previously, you might find these earlier posts relevant on some (but not all) points:

    The Austrians

    Fiscal Policy and a Dollar’s Real Claim

    Maybe also:

    What is ‘productive’?

    None of these posts cover everything, and none of them are entirely satisfactory as responses to the concerns you raise, but hopefully they are of some relevance.

    They don’t address your friend’s argument about intertemporal transfers (which I’m not sure I follow), speculation in commodities, or the full reserve banking argument. If you haven’t seen it, there is an old billy blog post on the last of these topics:

    100-percent reserve banking and state banks

    Also, billy blog on asset bubbles and food speculation might be of some relevance to some of the points raised:

    Food speculation should be (mostly) banned

    We should ban financial speculation on food prices

    Asset bubbles and the conduct of banks

    Sorry not to respond to more of your points directly at this stage.

    PS: Deus-DJ, in a later comment you wrote this:

    On some level I want to say the onus is on him to prove inflation, however small, can occur, for this very reason.

    Matt Franko has previously made a similar observation, and I strongly agree with both of you. In fact, I would say that the onus is on your friend to explain why we should care about inflation at the expense of employment.

    MMT establishes that unemployment is a government policy choice. It is not some “natural” outcome of the market, and it is not some “natural” amount of NFA or “money supply” or whatever that has determined it. It is a government policy choice. As far as I am concerned, if unemployment cannot be eliminated through the individual actions of the unemployed and others in the non-government, then it is simply a matter of morality that either the unemployed are guaranteed a job, an income, or both.

  22. Hi Deus-DJ, here’s my take. Regardless of the type of monetary system we use (for Austrians, fiat currency is always to blame), as a society we need to establish what our priorities are. We have choices to make, and from an economic perspective the following is what I think they’ve been:

    Trickle-up productivity gains (stagnant or declining wages over the last 30 years while productivity has soared), trickle-down inflation via speculation (yes, it can be regulated, and for the sake of argument make the assumption it’s a wash with whatever inflation a JG may generate), GDP growth fueled by unsustainable and super easy credit, “nation building” but only overseas, deregulation that caused the GFC, and our current ELR in the form of military enrollment. There are obvious others to be presented in the same manner – for-profit health care (what could possibly go wrong there?), skyrocketing student loan debt, environment, corporate welfare, tax loophole “entitlements” that primarily benefit the wealthy, etc.

    There are always alternatives, so prioritize and make your choices on these issues. And if you find them standing in a self-made puddle while having this conversation, then I’d move on with the understanding that you two probably have very different long-term visions for the country regardless of inflation definitions, types of monetary systems, etc. Just make sure to hold them responsible for cleaning up their own mess on their way out.

    And when “productivity” comes up, refer them to Peter’s ‘Boondoggling’ post for some examples. Because you don’t understand. I no longer judge people by their race, creed, or color anymore. It’s all about what they are doing (or have ever done) to increase my standard of living. I can now justify walking away from just about everyone or hanging up the phone mid-sentence because what a waste of my time… unless it’s the garbage man or any other public service employee. It’s been liberating.

    PS. No Peter, I am not an artist. Which is why I was hoping YOU were. So I suppose we’ll just have to muddle through this together. Because I’d hate to have to react when you turn down my suggestion for Hello Kitty art with such a promising friendship in front of us. 😉

  23. Trixie, no worries on the art. Artists are boondogglers anyway. 😉

    BTW, excellent points on the substantive issues raised by Deus-DJ.

  24. Just to add a bit to peterc comments. Inflation is also (to a very large part) an outcome of differences in productivity increase. Imagine a closed economy with no demand deficiency. Surely there will be sectors where productivity increases by 5% (Information Technology) and sectors where productivity increases by 2% (agriculture). These differences ultimately mean that purchasing power of people working in the 5% sector will increase more than the people in the 2% sector. The only alternative for the 2% sector workers to maintain their purchasing power is inflation.

    There are even sectors where we actually do not want productivity increases! We might be able to have schools with 100 children per classroom or hospitals with 100 patients per nurse but we do not want that. Nor will it ever be possible to maintain a steady 2% productivity increase for haircuts every year 🙂

    A small inflation is actually necessary to maintain the purchasing power of most people. And of course there’s the interest rate on loans which ultimately needs an increase in productivity or inflation to be repaid.

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