Paul Volcker, the Fed’s “dual mandate”, and the future of capitalism

by Jehu

So here are two things that have never happened before:

The first thing that never happened before is the fall in labor force participation since 2001:


Civilian Labor Force Participation rate 1948-2013 (BLS)

Since about 1963 labor force participation has increased each year for more than 30 years. It peaked in 1997-2000 than began falling — at first gradually, then more rapidly.

Why is this thing that never happened before important? Between 1963 and 1997, the growing mass of labor powers employed served as means for a growing mass of profits to find a place in production. This place was, of course, entirely unproductive of use value, but it was a means of accumulating value. This is absolutely necessary because an increase in the mass of profits must lead to an increase in the mass of labor power employed. Clearly, this has not taken place in the US since 2001 — each year there has been a decline in the portion of labor power employed.

This tells me the fascist state can no longer increase the mass of labor power employed in the US. It has given up on this and, even if reluctantly, has accepted the mass of labor powers employed in the US can no longer endlessly increase. On the other hand, this has now left an ever increasing mass of labor power (workers) who cannot find their place in production. These workers are now locked out of production and form a mass of entirely superfluous labor powers. This is not, as some allege, a reserve army of labor, but entirely superfluous laborers, who can never find a place in production. The difference between superfluous mass of workers and a reserve army is that the latter is cyclical, while the former is permanent.

I admit I could be wrong about this, but if I am right hours of labor must be reduced and right now. There is no alternative.

The second thing that never happened before is a fall in real output (GDP):

United States GDP 1920-2010 (BEA)

United States GDP 1920-2010 (BEA)

GDP has not fallen year over year in dollar terms since the bottom of the Great Depression. Of course, GDP denominated in gold terms has fallen over multiple years twice since the Great Depression. But, despite this real fall, nominal GDP has secularly increased owing to fascist state economic policy. The peak in dollar denominated GDP is unprecedented and should be taken as a symptom of the collapse of fascist state economic policy.

So far as I can tell no one has put these two things together with the deflation scare at the turn of the century. Clearly by 2000 it was obvious that labor force participation had peaked, but nominal GDP was still rising. This means the absolute mass of employed labor power had topped out, but the productivity of labor power was still increasing. The alarm at that time was that the peak in labor force participation would eventually give way to a fall in GDP. It would only be a matter of time before this increase in productivity would be expressed as devaluation of capital.

People really need to understand that nominal GDP is not, as bourgeois economists treat it, simply the production and consumption of commodities — it is also a measure of the continuous expansion of the circulation of capital. A fall in nominal GDP is a real contraction of capital — a devaluation of capital of unprecedented scale. This devaluation is taking place side by side with the contraction of the absolute mass of labor powers employed. The employment of labor power has no purpose other than the production of surplus value. And the production of surplus value has no other purpose than increase in the mass of capital; the increase of capital in the form of so-called GDP. Now both the employment of labor power and of the total capital has fallen for the first time since the 1960s.

The aim of fascist state economic policy was always to make sure these two never fell. So how does this process end? Where does this leave us? What is the next phase of development of the mode of production?

At this point we know that fascist state policy can no longer guarantee continuous increase in employment and capital within the US. This, however, should not be confused with an increase in the employment of labor power and of capital in the world market as a whole. The employment of labor power is not the same as the employment of US labor power. And the expansion of capital in circulation is not the same the expansion of capital within the US. It follows from this that, as Paul Volcker states it:

“I know that it is fashionable to talk about a “dual mandate”—the claim that the Fed’s policy should be directed toward the two objectives of price stability and full employment. Fashionable or not, I find that mandate both operationally confusing and ultimately illusory. It is operationally confusing in breeding incessant debate in the Fed and the markets about which way policy should lean month-to-month or quarter-to-quarter with minute inspection of every passing statistic. It is illusory in the sense that it implies a trade-off between economic growth and price stability, a concept that I thought had long ago been refuted not just by Nobel Prize winners but by experience.

The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned—managing the supply of money and liquidity. Asked to do too much—for example, to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth, and full employment—it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within its range of influence, then those other goals will be beyond reach.”

In this argument, the term “price stability” is simply a euphemism for “production of surplus value”. The term “price stability” has an exact — precise — meaning in neoclassical economics, where the price of a commodity includes an average rate of profit. Which is to say, the price of commodities must include an average rate of profit. The state has been telling us for 30 years that a “dual mandate” means employment for us only so long as there is an average rate of profit. “Price stability”, i.e., an average rate of profit, is no longer compatible with increasing employment of labor power in the United States.

“Price stability”, therefore, means the Fed has a responsibility to see to it that all prices include an average rate of profit. This, Volcker suggests, is now incompatible with the requirement of generally expanding employment of labor power in the United States. According to Volcker, the “dual mandate” should be dumped, which is to say the Fed should no longer be concerned with the employment of labor power in the US alone.

To put this in terms that might be understood by the Left: You are being cut loose, rendered superfluous, dumped. You are fucked! You can whine all the fuck you want about “not enough jobs” but your jobs were never important in the first place, assholes. You are product. Wake the fuck up!

We really need to figure this out before another decade of fruitless struggle — banging our heads against the wall-Mart — goes by. I would suggest the Left read Volcker’s piece. And every time he uses the term “price stability” just substitute the term “production of surplus value”.

Labor theorists need to investigate the concept of “price stability” and its relation to the neoclassical concept of price. If, as Sam Williams states, the neoclassical definition of price already includes the profits of industrial capital, price stability can only mean stability of industrial profits. Which means the fascist state is ensuring that there is always an average rate of profit through its economic policies. If this is true, and if we are facing absolute overaccumulation, this would mean the fascist state is always constraining wages. It is using its power to counterfeit currency to devalue real wages.

Can you labor theorists understand this? If  Volcker says “price stability” is no longer consistent with full employment in the United States, he is saying the fascist state can no longer ensure both an average rate of profit and prevent the emergence of a superfluous population of workers in the United States. This is a critical vulnerability in the fascist state’s capacity that we should be exploiting.

But, and this is the fucking point, you can only exploit it if you know it exists!