I’ve been thinking about responding to this article, Internet Marxists Who Are More Austrian than Neoclassical), but I don’t want to repeat myself, so let me try a different tack. I don’t guarantee MMTers will understand my argument. In fact, I don’t think they care about my argument. But, in any case, here goes:
The essential paradox of Modern Money Theory is not that it is wrong, but that it is wrong because, essentially, it is right.
The writer appears to believe that any opposition to MMT policies must result from the belief, “that a state currency not ‘backed’ by gold must surely have zero value or, at the very least, command a level of acceptance likely to crumble at any moment.”
Let me assure the writer that, at least in my argument, this concern is misplaced. I do not oppose MMT policies because fiat currency is subject to depreciation. Nor am I a gold-bug or what he calls an “Austrian Marxist”. In fact, communists were advocating a non-commodity means of exchange while bourgeois neoclassical theory was still in its infancy. Further, the Soviet Union and all socialist experiments of which I am aware, had no commodity money at all.
Again with Chris Arthur and his amazing 2003 paper.
Perhaps some might think I am being unfair in castigating Arthur for his historical ignorance when it comes to his discussion of money.
Well, let me put that thought to rest right now.
In the previous note I pointed out that Arthur makes the argument inconvertible fiat currency behaves the same commodity money does without ever once introducing a single piece of empirical evidence to support his claim. But this is not his only claim that actual historical investigation will disprove.
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.”
Labor 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.
On Monday, I showed both the workers and the capitalists view economic choices through the lens of capitalist relations of production. The fact that both classes view the crisis of capitalism through the same filter means the both accept the same false choices in the crisis. It is not true in the least that the working class is brainwashed by the capitalists to act against their own interests. Rather, because both classes see the crisis from their respective positions within capitalist relations of production, they arrive at the same general conclusions.
Those conclusions are consistent with capitalist relations and, therefore, imply a definite outcome: labor exists only to fatten profits.
Yesterday, I showed why the inflation\deflation debate is concerned with the consumption of labor power and the debt of capitalist firms. Deflation carries a risk firms will not increase their employment and may go bankrupt because falling prices put pressure on profits.
My post led to the following response on reddit’s Socialism page:
“Too tired to read article but debt becomes worse with deflation because in real terms it is worth more (the corollary is that you can inflate debt away, since the debt which is constant becomes less in real terms after inflation. [Krugman] wrote a good op ed about that on April 4th, called oligarchs and money if memory serves). Aside from that this article seems a little wacky”
“If State consumption and State credit, crushed together as if by an avalanche, play a central role in this development, this is also due of course, to the fact that the State (unlike a private entity which avails itself of credit) is considered to be a “secure debtor” which means, however, that the State, in the event of a great monetary and credit crisis, will not declare bankruptcy, but will simply expropriate its citizen-creditors.”
The argument Kurz makes here is that the unproductive consumption of surplus value, made possible by the credit extended to the state, is dependent on the state’s ability to repay its debt and must, sooner or later, result
in the state expropriating the owners of capital. I am not especially satisfied with the way Kurz formulates the problem here. My difficulty with Kurz’s formulation is probably best expressed in the words of the bourgeois simpleton, Paul Krugman — for reasons that are not entirely clear to the bourgeois simpletons the long-standing prediction of an impending crisis for Washington’s finances over the last thirty years never finally materialized:
“Fear of a Greek-style fiscal and financial crisis has loomed over much of our policy discourse over the past four years, and has played a significant role in shaping actual policy, constituting the principal argument for austerity in countries that don’t face any current difficulties in borrowing. However, despite repeated warnings that crises of confidence are imminent in floating-rate debtors – mainly the United States, the UK, and Japan – these crises keep not happening.”
Krugman has his explanation for why the predicted crisis “keeps not happening”, but he is a simpleton who thinks the problem is, “as simple and silly” as he is. Labor theory offers a much simpler and elegant explanation for why Washington has never experienced the sort of crisis predicted by bourgeois economists. It is an explanation I will need if I am to finally explain how reduction of hours of labor affects profits in an economy characterized by massive expenditures of unproductive labor time.
After 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.
The present crisis arises from the fact that there is a mass of superfluous capital that cannot, under any circumstances, become real capital — that is, cannot produce surplus value and, therefore, profit. This mass of superfluous capital poses the constant threat to the mode of production of a general devaluation of the existing capital as a whole. If a general crisis of devaluation is to be avoided, the state must run deficits, i.e., it must spend more than it takes in in tax revenue. State deficit spending is, therefore, not determined by the needs of society (and, in particular, by the needs of the social producers), but by the needs of the owners of capital, who, if they are to avoid a nominal devaluation of this superfluous capital, must hand it over to the state to be consumed unproductively in return for interest payments.
The purpose then for the fascist state to borrow the excess capital is to avoid a nominal devaluation of capital. Avoiding this nominal devaluation of capital does not mean the capitalists avoid a real devaluation of their capital. Which is to say, the real means of production and labor power of society is really consumed by the fascist state in the form of unproductive expenditures. But, in this real devaluation of capital, the nominal value of the capital, expressed in some currency, is replaced by the fascist state in circulation by valueless tokens, by treasuries, which represent it only symbolically and which take effect as such. The real capital consumed is, therefore, replaced by fictions of capital in the form of promissory notes issued by the state and on which it pays interest.
Part One: The owners of capital compete for the opportunity to lend their capital to the fascist state
In a recent lecture, Paul Krugman explained why, in his thinking, the US is not Greece. (Hint: almost nothing to do with language differences or geography.) Krugman lecture is an argument for why a country borrowing in its own currency cannot experience a Greece-type crisis, where bond buyers force the country into default by refusing to advance it further credit:
“Are Greek-type crises likely or even possible for countries that, unlike Greece and other European debtors, retain their own currencies, borrow in those currencies, and let their exchange rates float?”
I had an interesting exchange with David Graeber last night regarding the argument he raised in his article On the Phenomenon of Bullshit Jobs: Why would the capitalists want to expand completely unproductive jobs. The answer to this question has a number of implications the Left often completely overlooks.
The bourgeois ideologist, Ryan Avent, in his response to Graeber, suggested these newly created jobs are not bullshit jobs at all but a necessary material response to an increasingly complex mode of production. In other words, the newly created jobs since the peak of the industrial revolution were created because production has become more complex, not less.
“Over the past century the world economy has grown increasingly complex. The goods being provided are more complex; the supply chains used to build them are more complex; the systems to market, sell and distribute them are more complex; the means to finance it all is more complex; and so on. This complexity is what makes us rich. But it is an enormous pain to manage.”