There are a few loose ends to be tied up in this discussion. First, some people object to the Godley sector analysis on the ground that it is “tautologous” – because it relies on accounting identities. That is pure rubbish: it is a bit like saying that the quantity theory of money is “tautologous”: yes, it is “as an identity”, but it is not when you explain the “different roles” that the component parts play in going from “disequilibrium” to “equilibrium”! The quantity theory of money will never tell you how an economy “grows” (it is a “static” analysis, part of the “circular flow” or Kreislauf that Schumpeter described); but it may tell you how the component parts will react when one or another among them is “changed” (endogenous or exogenous “shocks”). And it is the same with Godley’s framework of analysis, which therefore can be defined as a “theory”. But I will not go into that here except to state briefly that obviously Godley felt that when the economy is “stagnant”, only a government stimulus can stir it from its inertia – and if the private sector is already in surplus, there is no alternative to further fiscal stimulus because otherwise… both the private and public sectors will be in surplus! (The “external” balance then comes into contention, but we will not go into that here.)
Returning to the quantity theory of money, once again, as with every bourgeois theory, it does not explain “why” and “how” the economy can “grow’ – because it is an “equilibrium identity”! So when Davies discusses “growth”, I (like the Nazi Gauleiter Goering whenever “culture” was mentioned)… “reach for my revolver”. The fact is that bourgeois economics deals only (only only only!) with “exchange”. And because in the “perfect” economy that capitalism represents for this pack of morons “exchange” must absolutely positively unequivocally be “equal” exchange…. there is no way known how the exchange of “equals” can ever pro-duce (bring forth, generate)… “growth”!
And this goes back to what we were discussing yesterday: how is it even possible (“possible”!) for the kind of economy described by bourgeois economics… to “grow”? We hinted at this yesterday by emphasising the fact that capitalist world trade is not a “zero-sum game” and that much depends on how “capital” relates to “workers”. That is the whole notion of “value”. So “value creation” is a matter of determining how available resources are “utilised” to ensure greater control over human “needs”. Those “dictatorships” I was talking about (China, Japan, Korea, even Germany and Taiwan) merely seek to use social resources either to produce “capital goods” such as infrastructure and machinery, or else they produce for “export” (even of consumption goods). What they try to avoid is to expand the domestic demand of their workers through higher wages – because this would lead to “inflation” and social instability!
An article in the FT today (http://www.ft.com/...html#axzz1QFpPmBFx ) looks at just this “disappearing middle class riddle” or “middle income trap” with regard to China, where the dictatorship exploits its workers so much… that they cannot afford to pay for the infrastructure that is built (50% of GDP goes to “investment goods”) so as to make this “investment”…. “profitable”!! Is it not time, we ask, that we looked long at hard at this “capacity utilisation gap”? Good luck, and good night!
DISCLAIMER!! The phrase "pack of morons" is intended for "bourgeois theoreticians" who sell us "general equilibrium analysis. It is NOT intended to address most "practitioners" who deal with "instruments" (or "tools" as Joan Robinson, followed by Schumpeter in the "History of Economic Analysis" called them) that "measure" an "existing" state of affairs (not "reality", in German "Wirklichkeit" but rather "Tatsachlichkeit" - "tangibility"). Per extenso or by implication this leaves out the amiable Gavyn Davies - whom we all admire and revere, not least for his "xenia" (in these days, filled with teargas smoke from Syntagma Square, that seemed appropriate).
The "Krisis" book that I am writing will deal with all of these theoretical matters in a "systematic" manner. Excerpts from it may be posted at the www.eforum21.com site.
All those people who dismiss these reflections as "quasi-philosophy" ought to bear in mind the following facts:
that one year ago we advised all and sundry to buy "utilities" on the stock market (they have wildly outperformed); that we told people to stick to treasuries and that Bill Gross was a rambling idiot (he has "lost" hundreds of millions); to stay out of China and stick with Wall Street (Paulson and Co are getting screwed blind!).
In short, there are very material "uses" to which "quasi-philosophy" can be put - and I say this in-between skiing the slopes in Queenstown, New Zealand. Seeing, as every bourgeois knows..., is believing!
There are a few loose ends to be tied up in this discussion. First, some people object to the Godley sector analysis on the ground that it is “tautologous” – because it relies on accounting identities. That is pure rubbish: it is a bit like saying that the quantity theory of money is “tautologous”: yes, it is “as an identity”, but it is not when you explain the “different roles” that the component parts play in going from “disequilibrium” to “equilibrium”! The quantity theory of money will never tell you how an economy “grows” (it is a “static” analysis, part of the “circular flow” or Kreislauf that Schumpeter described); but it may tell you how the component parts will react when one or another among them is “changed” (endogenous or exogenous “shocks”). And it is the same with Godley’s framework of analysis, which therefore can be defined as a “theory”. But I will not go into that here except to state briefly that obviously Godley felt that when the economy is “stagnant”, only a government stimulus can stir it from its inertia – and if the private sector is already in surplus, there is no alternative to further fiscal stimulus because otherwise… both the private and public sectors will be in surplus! (The “external” balance then comes into contention, but we will not go into that here.)
Returning to the quantity theory of money, once again, as with every bourgeois theory, it does not explain “why” and “how” the economy can “grow’ – because it is an “equilibrium identity”! So when Davies discusses “growth”, I (like the Nazi Gauleiter Goering whenever “culture” was mentioned)… “reach for my revolver”. The fact is that bourgeois economics deals only (only only only!) with “exchange”. And because in the “perfect” economy that capitalism represents for this pack of morons “exchange” must absolutely positively unequivocally be “equal” exchange…. there is no way known how the exchange of “equals” can ever pro-duce (bring forth, generate)… “growth”!
And this goes back to what we were discussing yesterday: how is it even possible (“possible”!) for the kind of economy described by bourgeois economics… to “grow”? We hinted at this yesterday by emphasising the fact that capitalist world trade is not a “zero-sum game” and that much depends on how “capital” relates to “workers”. That is the whole notion of “value”. So “value creation” is a matter of determining how available resources are “utilised” to ensure greater control over human “needs”. Those “dictatorships” I was talking about (China, Japan, Korea, even Germany and Taiwan) merely seek to use social resources either to produce “capital goods” such as infrastructure and machinery, or else they produce for “export” (even of consumption goods). What they try to avoid is to expand the domestic demand of their workers through higher wages – because this would lead to “inflation” and social instability!
An article in the FT today (http://www.ft.com/...html#axzz1QFpPmBFx ) looks at just this “disappearing middle class riddle” or “middle income trap” with regard to China, where the dictatorship exploits its workers so much… that they cannot afford to pay for the infrastructure that is built (50% of GDP goes to “investment goods”) so as to make this “investment”…. “profitable”!! Is it not time, we ask, that we looked long at hard at this “capacity utilisation gap”? Good luck, and good night!
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