The Real Movement

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Tag: neoclassical economics

“Karl Marx was right, but it doesn’t really matter.”

I have been reading this short piece by Matthew Yglesias “Where do profits come from? The obscure feud that tears left-of-center economics apart”. As the title states, the crux of the discussion is the failure of neoclassical economics to offer a credible alternative to Marx, who asserted that labor is the source of both wages and profit. The inability of the bourgeois simpletons to offer a credible alternative to Marx’s explanation results in a rather bizarre set of assumptions:

“Heterodox economists argue that it is circular to say that the profits accruing to the owners of capital are determined by the marginal productivity of capital, and then to calculate the quantity of capital in part by asking how profitable it is to own the capital goods.”

takethebigbagLabor theory says that profits are simply that portion of value created in excess of the value of the wages of the workers, while mainstream economics holds profits result from the marginal productivity of capital.

It should be clear that mainstream economics has already conceded this point to labor theory: labor is the source of all profit. No matter how this argument is obscured in all the gibberish of neoclassical economics, it has been demonstrated both theoretically and practically that there is only one source for both wages and profit: the labor of the worker.

As Yglesias points out:

Mainstream economists went through a few iterations of attempting to refute this objection before essentially concluding that it was correct. This is, indeed, one of the reasons why people on the heterodox side often seem to be embittered. The mainstream concedes the point, but tends to deny its significance.

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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.

–Wikipedia

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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Part 2: How Larry Summers proved Marx was right about everything — (And why this is not necessarily good news)

3. So here is my question

Why would Summers go to all that effort just to prove Marx had been correct all along regarding how the capitalist mode of production works. Why did Larry Summers set out to prove that the herald of the communist specter, the co-founder of Scientific Socialism and the arch-nemesis of the bourgeoisie was absolutely correct in his description of the difference between the way commodity money operates and the way valueless state issued pieces of paper function. Was it because of some intellectual curiosity about an obscure empirical observation that, even by Summers’ own admission, was no longer even relevant? Was  it a platonic pursuit of truth?

Personally, I don’t know any communist who thinks the words “Larry Summers” should appear in the same sentence with the word, “truth”; and I am not buying that explanation either. The more likely answer would be that a proper understanding of how the mode of production works is necessary both if you want to accelerate capitalism’s development and if you want to devise effective policies to prevent it from collapsing.

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How Larry Summers proved Marx was right about everything — (And why this is not necessarily good news)

In honor of Larry Summers’ likely failed attempt to be the first in line to sniff Ben Bernanke’s chairman’s seat at the Federal Reserve Bank, I am going to look at his paper on Gibson’s Paradox. If he is successful in replacing Bernanke as head counterfeiter at the Fed, the paper might hold some clues to his future policy actions. Or, at least that is my theory — we will see what develops.

1. Background

So what is Gibson’s paradox, and why was Larry Summers interested in it in the 1980s? According to Wiki:

“Gibson’s Paradox is the observation that the rate of interest and the general level of prices are positively correlated”

Rows of gold barsThe alleged paradox at the heart of the positive correlation between prices and interest under a commodity money regime is simple, but has far reaching implications: Unlike the predictions of mainstream economics, the empirical evidence shows that as prices increase, so does the rate of interest; and as they decrease, so does the rate of interest. As Sam Williams explains in a blog post,

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There is likely no exit from Quantitative Easing

There is a lot of talk in policy circles and among speculators on Wall Street that the Federal Reserve will begin to ‘taper off’ its wholesale counterfeiting of fiat dollars before the end of the year. Whether or not this happens, I think any attempt to taper off counterfeiting dollars bernankespeech_2325210bwill have to be reversed in short order.

The reason why tapering will likely not happen is not to be explained by any lack of hyperinflationary risks associated with the insane counterfeiting of dollars Bernanke is engaged in — the risk of hyperinflation is actually quite high. But this risk of hyperinflation is dwarfed by the even greater risks associated with not insanely counterfeiting: outright deflation that threatens the very existence of the mode of production itself.

Christina and David Romer have declared that the argument from some policy quarters that Federal Reserve monetary policy doesn’t matter is “the most dangerous idea in Federal Reserve history”.

Let’s see why this might be true.

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