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Tag: Guglielmo Carchedi

Why Marxists can’t explain how Keynesian policies work

(And they can’t explain why Keynesianism collapsed either)

Part Two

This is part two of the series, “How fiat currency killed Marxism”. Part one is here.

YoungstownPlantAt the high level of abstraction of Capital, money has to be a commodity, because Capital presents a theory of a “pure” capitalist economy, without state intervention. And in the 19th century laissez-faire capitalism (without state intervention) that Marx was analyzing, money was a commodity and money had to be a commodity in its functions of measure of value and store of value. However, in the post-1973 contemporary capitalism, money is no longer a commodity (i.e. is no longer convertible into gold at a fixed exchange rate), and money does not have to be a commodity in Marx’s theory. The state-guaranteed fiat money serves the same purpose as gold under the gold standard – it provides an observable, homogeneous, quantitative, and socially valid expression of abstract labor.  —Fred Moseley, Money has no price

If Keynesian currency devaluation allows the state to maintain production for profit by reducing the real value of wages, why were Keynesian policies abandoned in the late 1970s for neoliberalism? To explain why this happened, requires some discussion of the problem with simple Keynesian “full employment” policies.

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VI: Kliman’s staggering 2009 admission that the rate of profit did not fall before the financial crisis

Can state deficit spending be used to artificially add to the mass of profits? And if so, would deficit spending account for the rather ambiguous (even contradictory) results labor theorists’ produce when they try to empirically substantiate Marx’s thesis on the falling rate of profit?

In his 2013 paper, the Australian labor theorist, Peter Jones, provided a persuasive argument that the fascist state can indeed augment or subsidize the rate of profit through its deficit spending. And he argues this capacity can explain much of the ambiguous results labor theorists have produced over the last three decades as they attempt to empirically demonstrate or disprove Marx’s argument on the role played by the falling rate of profit in capitalist crisis.

According to Jones, government borrowing mystifies economic relations by making it appear as if the state can consume surplus value without reducing either profits or wages. If labor theorists do not account for this false appearance, they are implicitly accepting the Keynesian assumption embedded in mainstream economics that government borrowing can create new surplus value.

In his 2012 paper, “Could Keynes end the slump? Introducing the Marxist multiplier”, Gugliemo Carchedi discussed how Keynesian deficits spending works and, like Jones, concluded this deficit spending cannot create money (or, more accurately, value) out of nothing. However, he went one step further: Carchedi argued that once the state began to repay its debt, it would have to raise taxes for this purpose. Whatever additional ‘demand’ the state created by deficit spending during an economic downturn would turn out only to be deferred taxation on the population. Essentially, since the state is not a producer of commodities, it could only bring spending forward; this credit funded ‘prosperity’ would have to be repaid at some point by higher taxes.

Carchedi’s argument may or may not be correct in the long run, but Jones’ paper suggests Washington has been able to run deficits — and, therefore, artificially prop up profits — over a fairly long period of time without running into the need to balance its budget. For more than thirty years, the US has been able to spend more than it takes in without apparent difficulty or obvious limits.

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V: How Peter Jones demolished Andrew Kliman’s book in 22 brief pages

Does the collapse of the gold standard and the switch to commodity money have any implications for labor theory? The Brazil labor theorist, Paulani argues it does not:

“when, historically, the umbilical cord that linked the money form to the commodity form was cut (in 1971), the dollar value of goods shifted in relation to other currencies, but they kept between themselves the relations which their labour values (prices of production) produced earlier, backed in gold…”

According to Paulani, then, the prices of commodities may have no longer been convertible into gold after 1971, but they did not shift relative to each other. If, before the collapse of the gold standard, four candy bars exchanged for one pair of teatssocks, this much remained unchanged afterwards. Whether this is true is not the point, since, stated in this simplistic form, it can easily be disproven; however, many such changes can be written off to supply and demand “shocks” of one sort or another. Since any such shock is accidental, Paulani’s argument can be reduced this: whatever change did occur, they were accidental and did not result from the collapse of the gold standard. In fact, since relative prices fluctuated constantly even before the collapse of the gold standard, this is a reasonable explanation.

However this argument by Paulani in her 2014 paper is directly challenged by Peter Jones in his 2013 paper, The Falling Rate of Profit Explains Falling US Growth”. Jones argues the collapse of the gold standard directly explains the difficulty labor theorists are having substantiating Marx’s falling rate of profit thesis.

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IV: Simon Mohun’s unproductive effort to identify productive labor

As I explained in my last post, substantiating Marx’s falling rate of profit as the cause of capitalist crises, and, in particular, as the cause of the so-called great financial crisis of 2008, runs into the difficulty that Marx made his argument on the basis of values. The difficulty this poses for analysis is that, since 1971, the various categories of analysis employed in measuring the rate of profit are denominated in inconvertible fiat dollars. Fiat dollars are not money in themselves, but tokens — 2007-10-20-77368474placeholders — for commodity money. Prices denominated in this inconvertible fiat, therefore, are not values in the sense Marx employs this term throughout Capital.

Thus, in order to construct an empirical proof of Marx’s thesis on the causes of capitalist crises using the empirical data, labor theorists are forced to convert inconvertible fiat prices into Marxian values. This is a new problem that did not exist before the period between 1933 and 1971 when the gold standard began to come unraveled. Since the dollar was pegged to some definite quantity of gold, dollars prices represented some definite quantity of gold as well. After the collapse of Bretton Woods in 1971, however, this relationship was severed and the dollar’s exchange rate with gold was allowed to float.

The question immediately arose whether Marx’s theory applied in the case where the currency used in daily transactions no longer had any fixed and definite relation to commodity money. Since the quantity of fiat in circulation has always been determined by the state, not by the values of the commodities in circulation, was it not the case that the socially necessary labor time required for production of commodities (value) no longer determined how a capitalistic economy functioned?

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III: How Fred Moseley MELTed Kliman’s argument on the falling rate of profit

One of the little discussed problem with Andrew Kliman’s attempt to empirically verify Marx’s falling rate of profit thesis is that he is working with inconvertible fiat dollars (dollars which no longer can be redeemed for gold) and dollar prices — in the form of GDP, wages, profits, etc. — and these prices are not labor values as Marx defined the term. How Kliman handled this problem in his analysis of the empirical data is a story in itself.

7351347-crisis-finance-the-dollar-symbol-in-melting-ice-devaluated-money-image-symbolizing-the-bankruptcy-1024x939In his paper, “The Law of the Tendential Fall in the Rate of Profit as a Theory of Crises”, Gugliemo Carchedi answered critics who argue the falling rate of profit thesis cannot be empirically substantiated because Marx was discussing values not prices in his thesis. Fiat prices, however, are not values and have no relation to the values or socially necessary labor times required to produce commodities.

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Bernanke’s ‘Septaper’ Debacle

Why didn’t the Fed begin tapering yesterday? Matt O’Brien (twitter: @ObsoleteDogma) thinks he knows:

“The short version is it didn’t make sense. The longer version is it didn’t make sense, because the recovery is still rotten — and might get even more so.”

The cause of this rottenness is clear for O’Brien:

“The Fed won’t be willing to withdraw any stimulus until House Republicans give up their fantasy of using a government shutdown or debt default as leverage to defund Obamacare.”

Ben Bernanke Holds News Conference After Fed Interest Rate AnnouncementThis is a rather unconvincing explanation in my opinion. In 2002, Bernanke looked at Japan and asked why, if he was recommending quantitative easing if deflation struck the US,  quantitative easing didn’t work for Japan. He came up with an interesting explanation: Japan was rocked by an economic and political crisis in addition to deflation:

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The Left’s myopic defense of the Keynesian social state

The root of the Keynesian social state is the starvation of the working class

I think the post-war Left has never been able to properly understand Keynesian economics because it has never grasped capital itself. This problem has deep roots in labor theory back to Marx’s piece, “Reflections on Money”, where he criticizes a one-sided view of capital. He pointed out that capitalism is not just the exchange between consumers and capitals, but also between capitals themselves and the relation between the two. Another way to put this, I think, is that capital is not just the circulation of commodities, but capital in the form of commodities.

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Three fundamental errors in the Marxist critique of Keynesian economic policy

Gugliemo Carchedi’s paper shows what I think are three fundamental flaws with the mainstream Marxist critique of Keynesian policies that must be addressed by labor theory scholars.

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Seriously, Gugliemo Carchedi doesn’t know jack-shit about Keynesian economic policy (2)

And neither does John Bellamy Foster…

Gugliemo Carchedi divides Keynesian policies into two categories: capital financed and labor financed redistribution or investment. Labor financed state policies are, in his words, neoliberal; while capital financed state policies are Keynesian.

How does Carchedi arrive at these definitions of Keynesianism and neoliberalism?

sepia tone if possAccording to John Bellamy Foster, who Carchedi uses as a reference in his paper, “Keynes advocated expansive fiscal policy and deficit financing in a depression”. According to Foster then, Keynesian policies are not financed by ‘labor’ or ‘capital’, but by debt. Carchedi’s definition of “Keynesian” and “neoliberal” is problematic because it appears to state, and seems to be interpreted as, ‘financed at the expense of capital’ or ‘financed at the expense of labor’. Carchedi’s argument seems to hang on a very slippery employment of the term, ‘financed’.

The problem with Carchedi’s use of the term ‘finance’ in his statement is that this could be taken to mean the state expropriates the capital of the capitalist class or the wages of the working class and redistributes the proceeds between the two classes or invests it.

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Seriously, Gugliemo Carchedi doesn’t know jack-shit about Keynesian economic policy

Here is how Gugliemo Carchedi defines Keynesian policies:

“To begin with, what are Keynesian policies? First, they are state-induced economic policies. Second, they can be redistribution policies or investments policies. Third, they should be capital financed and not labour financed. If labour-financed, they are neoliberal policies. Fourth, in the case of state-induced investment policies, they can be either civilian … or military. “

According to Carchedi then Keynesian policies are state induced, capital funded, civilian sector, redistribution and investment policies. Neoliberal policies differ from Keynesian policies only in that they are ‘labour-financed’, rather than ‘capital-financed’. Of course, this is not at all what Keynesian policies are and Carchedi should know it. Keynesian policies are a set of state economic policies designed to reduce the real wages of workers below the value of labor power. I am not sure why Carchedi defines Keynesian policies the way he does, but he is completely wrong.

eurozone-debt-crisis-By-Carlos-LatuffWhy do Keynesian policies aim to reduce the wages of the working class below the value of labor power? To prop up profits, of course. The argument Carchedi makes in his paper is that Keynesian policies do not and cannot restore profitability is, therefore, interesting. He demonstrates rather convincingly that Keynesian policies do not work through income redistribution or investment policies. Essentially, the distribution of the social product and the uses to which the social product is put no longer have any effect on profits.

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