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Tag: monetarism

The hidden conflict within the fascist state for control of economic policy (5)

I have been going through this process in order to clarify for myself the logic of the current discussion of so-called negative interest rates — an oxymoron if ever there was one. This is part five of the series; part one, part two,  part three and part four can be found here. I hope it also will have some use to readers.

Part Five: The dollar and the increasing possibility of 21st Century Currency Warfare

Can monetary policy be rescued from oblivion? Probably not. There are just too many difficulties with the idea of negative interest rates on currency.

As I explained in part four of this series, Haldane proposes that the way around the zero lower bound on monetary policy may be to impose a negative interest rate on the holders of state issued currency. If a way could be found to force the holders of currency to pay interest on the currency in their bank accounts, wallets, pockets — and even in their mattresses — the distinction between credit money and currency could be forcibly imposed on society by the state despite a zero interest rate environment.

Once stripped of its deceptive wrapping as mere monetary policy, what Haldane is proposing is the outright expropriation of your savings account, your checking account and even the currency in your wallet and cookie jar. This goes well beyond monetary policy and begins to encroach on the limits of national economic policy itself. Under the most charitable interpretation, his proposal is well into the sphere of fiscal, even currency, policy despite the attempt to conceal it behind protective coloration as a negative interest rate on currency.

For the moment, however, let’s ignore this potential objection to his proposal. Instead, let’s treat it as a proposal for a measure similar to what FDR did in 1933: pure and simple devaluation of the currency.

What are the difficulties to be considered?

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The hidden conflict within the fascist state for control of economic policy (4)

I have been going through this process in order to clarify for myself the logic of the current discussion of so-called negative interest rates — an oxymoron if ever there was one. This is part four of the series; part one, part two and part three can be found here. I hope it also will have some use to readers.

Part Four: The desperate search for an exit from failed monetary policy

“I think we got the Recovery Act right. The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.” Larry Summers, Washington Post, November 8, 2009

“We didn’t think it would take that long.” Ben Bernanke, USA Today, October 5, 2015

The disappointment with the weak impact of counterfeiting the currency was admitted by Bernanke in a recent interview. This was not supposed to happen according to the dominant monetary theory, and Ben Bernanke in particular, where the prices of commodities are a function of the supply of currency in circulation. According to Bernanke’s “quantity theory of money”, the government had this technology, the printing press, which it could use to manage the US national capital. In fact, following the financial crisis, the policy rate went to zero without providing any real stimulus at all.

The chief economist of the Bank of England, Andrew Haldane, gave a speech in September on the problems faced by monetary policy. Although Haldane never mentions Larry Summers, his speech addresses the same concerns Summers raised in his own November 2013 “secular stagnation” speech. The problem is that monetary policy, on which the United States has relied since 1979, has run into a dead end, the zero lower bound. Had Washington not stepped in and provided a multi-year, multi-trillion dollar fiscal stimulus, capitalism likely would have collapsed. No one will admit it, but this is in fact what has happened after the 2008-2009 financial crisis.

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The hidden conflict within the fascist state for control of economic policy (3)

Part Three: The Zero Lower Bound and the Collapse of Neoliberal Monetary Policy

I have been going through this process in order to clarify for myself the logic of the current discussion of so-called negative interest rates — an oxymoron if ever there was one. This is part three of the series; part one and part two can be found here. I hope it also will have some use to readers.

To recap my argument so far:

Keynes in his 1930 essay, Economic Possibilities for Our Children, diagnosed the cause of the Great Depression as the improvement in the productivity of labor. Although at first admitting this improved productivity must sooner or later require reduction of hours of labor, in his 1933 essay, The Means to Prosperity, he ultimately proposed to fix it by a two-fold strategy: First, the state should maintain abundant credit at very low interest rates to facilitate private investment; second, the state had to lift total spending on commodities through deficit spending.

By the 1970s, however, this strategy — basically a strategy to avoid reducing hours of labor — ran into the twin economic maladies of stagnation and borderline hyperinflation — sometimes called stagflation in the popular press — leading to the political movement to get rid of state management of the economy entirely. In turn, this effort to get rid of state management is more popularly referred to by the name, neoliberalism, on the Left.

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The hidden conflict within the fascist state for control of economic policy (2)

Part Two: The collapse of the Keynesian policy consensus

As I stated in my previous post, the conflict over control of state economic policy can be traced to the Great Depression. Keynes set the state economic policy framework for this conflict by tracing the cause of the Great Depression to the improvement in labor productivity. According to Keynes in 1930, the depression was caused by capital reducing the need for labor faster than it could find new uses for labor. Of course, capital only has one use for labor: the production of surplus value, production of profit. Keynes was essentially confirming Marx’s prediction that the diminishing need for labor would lead to the collapse of commodity production.

Paul_VolckerAccording to Marx’s labor theory the price of a commodity is only the expression of the “socially necessary labor time” required for production of commodities. This implied that as the labor required for production of commodities fell, so would their prices. When the Great Depression hit, the problem pointed out by Keynes, that the reduction of labor was outrunning the pace at which capital could find new uses for labor, was expressed in deflation, i.e., generally falling prices.

Marx’s argument that the prices of commodities were tied to their labor value carried deadly implications for capitalism. Since prices paid for commodities was the only way the capitalists could recover their investment. Falling prices implies growing pressure on profit. If the capitalists could not sell their commodities at prices to cover their investment plus profit, capitalist production for profit would come to a standstill.

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The hidden conflict within the fascist state for control of economic policy

This article, Devaluations didn’t work, points to what I think is the real reason the Federal Reserve is desperate to raise its policy rate some time this year. It is becoming increasingly obvious monetary policy hasn’t delivered and the bankers are in danger of losing their control of economic policy.

According to the Economist: “Devaluations today haven’t had the positive impacts the end of Gold Standard did in the 1930s”. In the aftermath of the financial crisis of 2008-2009, bourgeois simpletons are deeply divided over how to replace the extraordinary measures taken to prevent collapse of capitalism with a set of policy tools that can be used to manage the crisis long-term. At the heart of this struggle is the question,

“Why aren’t currency devaluation policies creating inflation?”

To answer this question will require a little bit of economic history.

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Looking for an Exit from the Crisis

participants-of-the-g20After writing the post about Michael Spence and his proposal for the advanced countries to pursue an export-led growth strategy as way out of the crisis, I became intrigued with looking at how mainstream economics thinks exit will happen. So I have been spending time trying to find the answer to this question.

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Part 3: Pushing On A String? – The puzzle of the composite commodity in neoclassical theory

Lump of labour fallacy: In economics, the lump of labour fallacy … is the contention that the amount of work available to labourers is fixed. It is considered a fallacy by most economists, who hold that the amount of work is not static.


In part 2 of this series, I showed why fascist state management of the mode of production is indirect, rather than direct, i.e., why the state seeks to manage the process through its control over money, rather than directly imposing its control over the process of production. This method of management perfectly expresses the way in which crises actually unfold empirically within the mode of production. The first obvious symptoms of crisis are in exchange: unsold commodities, rising unemployment, credit contraction and a fall in GDP. It follows that any attempt to end a crisis will begin with these symptoms, rather than the underlying overaccumulation of capital.

Moreover, this method of approach reflects the problem from the standpoint of capital itself, where the problem, empirically, is not overproduction, but the ‘absence of demand’ for what has already been produced. For capital, the mode of exchange operates as an impediment to the realization of the surplus value already created. By necessity, therefore, the effort of management of the mode of production is directed at overcoming what capital sees as the ‘defects’ of the mode of exchange.

However much we can ridicule the simpletons for taking the result of the process of production for its cause, this much is clear: Between 1933 and 2008, nominal GDP experienced no year over year contraction — that is 75 years of unbroken nominal growth. To give this fact a historical perspective, in the 75 years prior to 1933, the US experienced at least 20 economic dislocations of various types, including depressions and panics. There is no question that fascist state economic management, for all of its silly assumptions, has been an unparalleled success so far as bourgeois economists are concerned. For most of that period, the only contraction in nominal GDP the US experienced were engineered by Washington deliberately to slow nominal growth of money in circulation, of employment and of GDP.

By way of comparison, consider that the Soviet Union experienced about 70 years of unbroken growth employing direct management of production. gorbachevFor all of the success of the Soviet mode of production in this regards, however, year 71 was a motherfucker — the Soviet centralized production system collapsed and the Union quickly broke up. Success along these lines clearly does not in any way guarantee against collapse. In the Soviet Union in 1991 and in the United States in 2008, it was as though 70 years of development was suddenly expressed in a single massive movement of society.

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Part 2: Pushing On A String? – Capitalist crisis from capital’s point of view

Business cycle stabilization: Stabilization can refer to correcting the normal behavior of the business cycle. In this case the term generally refers to demand management by monetary and fiscal policy to reduce normal fluctuations and output, sometimes referred to as “keeping the economy on an even keel.”

— Wikipedia

2. The bourgeois simpleton’s view of crisis

In the first part of my series on how economists see the mode of production they are attempting to manage, I explained how the method of management focuses not on capital, i.e., the production of surplus value, but on the reflexive expressions found in exchange relations. This is sort of like attributing to a sheet of paper the words that are printed on it, rather than the pen in the hand of the writer.

crisisFrom the viewpoint of labor theory, however, this approach is not surprising. A commodity producer only finds validation for the social character of his labor when trying to sell his commodity. His activity, the production of the commodity, is carried on in isolation, but only becomes a social product through exchange. This cannot be emphasized enough: The commodity producer intends to sell his commodity, but he doesn’t even know if there is a market for it.

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Pushing On A String? – The logic of state management of capitalism

“‘Pushing on a string’ is particularly used to illustrate limitations of monetary policy, particularly that the money multiplier is an inequality, a limit on money creation, not an equality.” –Wikipedia

So here are the questions I have been contemplating for the past week or so: When simpleton economists suggest policies to manage “the economy”, what in their view do they think is being managed? How do they Yellen-Summers-picconceptualize both the “economy” itself and the tools they employ to manage it? What, if any, are the vulnerabilities (defects) of this form of management that is being expressed in the current debate among mainstream (neoclassical) economists? In particular, what are the choices being expressed in the debate over who should replace Bernanke as chair of the Federal Reserve Bank?

To be sure, I am not trying to offer a polemic against mainstream economics in this essay but to understand this policy in its own right, as well as to restate it in a form that is comprehensible within a labor theory framework as i understand that framework.

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Marx proven wrong by Progressives and Liberals once again

1. How to create 2014 talking points in four easy to follow steps

File this under, “Marx Proven Wrong By Progressives and Liberals Once Again”.

The question this time is the relation between industrial capital and finance capital. According to DSWright (whoever the fuck she/he is) Michael Hudson, a heterodox economist,

“has long claimed that Marx’s contention that ultimately industrial capitalism would triumph over finance capitalism was wrong.”

In fact, according to DSWright, bankers now dominate the economy and subject productive employment to the “rent-seeking” priorities of finance capital. Says Hudson, in 1998,

“Whereas the old industrial capitalism sought profits, the new finance capitalism seeks capital gains mainly in the form of higher land prices and prices for other rent-yielding assets.”

hudsonIndustrial capital, in other words, only engages in healthy, wholesome profit-making, while finance capital seeks debt slavery and constantly rising physical and financial asset prices.

DSWright is happy to report Hudson’s correction of Marx has now been adopted into the arguments both of Joseph Stiglitz and of Paul Krugman. According to Stiglitz much of what goes on in the financial sector is unhealthy, vile rent seeking, not healthy, wholesome profit-making. Paul Krugman has recently declared America in the 21st century is now seeing “the growing importance of monopoly rents: profits that don’t represent returns on investment”. Krugman argues these monopoly rentiers with their market dominance actually may be prolonging the depression. The unprecedented duration of this depression is, “no puzzle here if rising profits reflect rents, not returns on investment.”

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