On Postone’s concept of the hollowing out of working society – XXIV

by Jehu

Let’s look at that last bizarre chart again:

Chart 1

The chart is a visual representation of the impact of state spending on the gross domestic output of the United States national economy from 1860 to 2020.

The chart appears to be bisected into two periods. In the first period, state expenditures appear as negative values, i.e., they appear as a drag on gross domestic output.

In the second period, state expenditures appear as positive values, i.e., they appear to contribute to gross domestic output.

In both periods, however, state expenditures are entirely superfluous to the production of value and surplus value. The state produces nothing and simply expropriates what it requires from society under the heading of taxation and other revenue.

This expropriation directly translates into a material loss of the productive capacity of society. Bourgeois scribblers may give this expropriation all sorts of justifications after the fact, but we are not distracted by these justifications. The state is a vile parasite on society, ruthlessly bleeding it of its substance and swelling to immense proportions as a result.

But, enough of this petty moralizing, because I’m beginning to sound like a worthless libertarian or even — god forbid — a god-awful untutored anarchist!

What we’re really interested to learn is how the state made the transition from being a hopelessly unproductive, parasitic drag on the national economy to actually becoming a “productive citizen” of sorts, capable of contributing to, and even stimulating, gross domestic output.

The transition occurs during the Great Depression of the 1930s and so we need to focus on that period.

Remember this chart?

Chart 2

Of course you do.

That chart shows what happened when FDR issued Executive Order 6102, expropriated privately owned gold, devalued the gold price standard by seventy percent and began “paying” our poor, historically doomed dirt farmers under the AAA, with counterfeit dollars, for the crops they could not sell in the market.

As you can see, despite FDR’s order, GDP denominated in gold continues to decline into 1933 and never recovers to its 1932 level, even by 1939.

However, nominal GDP, denominated in worthless paper dollars immediately halts its decline, dropping only negligibly in 1933; by 1934, it is popping well above its 1932 low.

I’ll bet you thought, “Boy, that’s a huge jump in nominal gross domestic output just from buying a few hundred thousand bushels of corn.”

Yeah, I had the same thought too, so I looked at how much of a difference there was between gold-denominated GDP and dollar-denominated GDP in 1933.

This cleaned up chart shows visually what I found:

Chart 3

As you can see in the third chart, in 1933 GDP denominated in gold continued to plummet, while nominal GDP, denominated in dollars, fell only slightly. By the end of 1933, the difference in the two measures of GDP amounted to about 23.4 billion dollars — a truly massive sum in an economy that, nominally, was only about 60 billion dollars at the time.

I thought, there is probably more going on here than the state just “paying” our poor, historically doomed dirt farmers under the AAA, with counterfeit dollars, for the crops they could not sell in the market.

Then, it occurred to me that after Executive Order 6102, the state could “pay” not only our poor, historically doomed dirt farmers, but everyone it normally “bought” commodities from in the same counterfeit dollars, including its existing employees and vendors, and fund all of its social programs (such as existed at the time) for whatever purpose.

Chart 4

So, I created this second chart with — an additional overlay for state sector expenditures — to see if my hunch fit. I want to know if the gap between nominal dollar- and gold-denominated GDP could be explained by a shift that took place when FDR issued Executive Order 6102.

Did FDR’s executive order shift the entire state sector from being a drag on the nominal United States GDP to acting as a net addition to United States GDP?

Now, of course, there is no way to see this shift in the raw historical data provided by the BEA. But I should see the next best thing: the size of my alleged shift in the impact of state spending on GDP between 1932 and 1933 should approximate the difference between what labor theory says gross domestic product should have been in 1933 and what the BEA data says GDP actually was in 1933.

And what do you know?

The two sums appear to loosely match.

The difference between nominal GDP in 1933 according to the BEA and what GDP should have been according to labor theory of value is about 23.4 billion dollars.

And, according to my calculation, when the state sector goes from being a -12.4 billion dollar drag on nominal GDP in 1932 to adding 12.6 billion dollars to nominal GDP in 1933, the net change is about 25 billion dollars in nominal GDP.

The discrepancy in my calculation from the actual data is about 1.5 billion dollars — so the figures are not exact and this needs to be explained, of course, but my argument is basically consistent with the data.

How is this explained?

To understand how it works, just ask the folks who describe how modern money (debased state-issued currency) works and how the state really finances itself.

They will tell you that the state would not have needed any special program to begin this AAA-style bailout of the entire economy beyond the initial Executive Order 6102, because the executive order itself effectively freed the state from any domestic fiscal constraint.

The state could issue currency as it saw fit to finance its own operations, cover the “costs” of hiring labor power, make “purchases” of commodities from vendors, and “fund” such social programs as existed then to temporarily stabilize not just the dirt farmers, but the entire economy.

As a result, the state sector went from being a economic drag on gross domestic product in 1932 to boosting nominal gross domestic product in 1933.

And labor theory of value would add that the state did this without producing any commodities or use values, any value or surplus value, and by only unproductively consuming existing the excess capital that was already in circulation!

Which means, the New Deal was a distraction; after E.O. 6102, the expenditures of the entire state sector was basically the AAA on steroids — a program for paying a lot of people to perform unnecessary, superfluous labor that created no value, yet still consumed a lot of excess capital that had already driven the mode of production based on exchange value to collapse.