Wednesday, 31 August 2011

Bill Gross And World War Three

Finally Bill Gross has given up his loss-making bet against US treasuries and come up with good insights about the state of the capitalist world. Both these topics are matters over which we advised Gross in the recent past (just look through this site) and he did not listen. Now he has (wise man). But he is still wrong on one thing: on the US dollar. Here is his piece:
http://www.businessspectator.com.au/bs.nsf/Article/liquidity-bond-markets-ECB-eurozone-sovereign-debt-pd20110831-L8W5H?OpenDocument&src=sph

Gross starts from the right analysis - but comes up with the wrong conclusions! (Because his analysis is incomplete, that's why.) He is entirely right on the fact that what we have called "The Fracture" is now becoming wider and threatens to drag us all into a global conflict. But that would only mean that the US dollar will become even more vital to capitalists than ever!!

Martin Wolf, Reinhart and Rogoff have called it "The Great Contraction".
OK friends! You read it here first! We are calling it:
THE GREAT CONVULSION!!

Addendum to Comment on Martin Wolf


As you can see “the wage relation” is central to our analytical critique of capitalism. The “wage relation” is not limited to nominal monetary wage negotiations. It is a much broader notion that moves far away from wage negotiations and distribution of income to the much more crucial notion of the nature of work and the nature of production. The antagonism of the wage relation would be relatively easy for capitalists to fix if it was confined to contractual negotiations with capital as to the retribution of workers. The point here is much more important than that: - antagonism over the wage relation extends to the actual subordination of living labour to capitalist command in the process of production (of goods and services) and, therefore, also to the nature of the work that workers are coerced to perform under capitalist command in the workplace and, by extension, the nature of the pro-ducts created in the capitalist productive process.

You will appreciate that even admirably enlightened economists like Minsky entirely by-pass this “critical” aspect of capitalism – only to concentrate on its “financial instability” which, if anything, is an effect of wage-relation antagonism but not its cause. And he also failed to capture “critically” the amazing Schumpeterian insights into the capitalistic “use” of technological innovation as a practical tool of command inside and outside the workplace. (Schumpeter himself encouraged the development of an “economic sociology” in this regard.)

You would have noticed that bourgeois economic “science” has just awarded a Nobel Prize to Oliver Williamson whose work, once again, can be described as a Schumpeter-inspired “microeconomic-managerial” study of the capitalist corporation as a “structure of command” that bypasses “market or price mechanisms” to internalise these political functions within the “corporate” hierarchy (legally, administratively as well). (Hayek’s analysis of the “price mechanism” as an “economy of information” is similar and offers important analytical clues.)

The vice of modern economists (academic or journalistic or professional) is to neglect this dimension of capitalist social relations of production for reasons that seem obvious to me: - because considering these elements of “the economy” would lead to the immediate political challenge of both the productive process in the workplace (how we work) as well as the distributive process in the sphere of consumption (what we produce and how it is distributed). These are “explosive” questions that bourgeois economists find it impossible to address because they call into question the very legitimacy of the society of capital, of its “corporate sector” and of its “State-Plan” that is now reduced to a “Crisis-State”. What makes them “explosive” is the fact that the antagonism of the wage relation can no longer be “mediated” through inflation and even less through “austerity measures”, but rather invests im-mediately the “political sphere” of the Crisis-State.

For bourgeois economists to confront these crucial, critical elements of “economic” analysis would necessarily draw them into accepting that “the economy” is not a quantifiable entity that can be described, let alone understood, with a system of mathematical formulae and equations leading to a (metaphysical) “equilibrium”. Rather, “the capitalist economy” is a set of relationships of power, of domination and command especially in the sphere of production, in the workplace, which is why “the wage relation” is ineluctably central to it.

(For a theoretical introduction to these themes I would recommend Raniero Panzieri’s work. Please google his name. Panzieri is one of the greatest theoreticians of the last century. The fact that scholars like him are ignored by bourgeois “science” is in itself a ringing indictment of the complete contempt these people have of workers, their reality and their interests.)

Tuesday, 30 August 2011

Comment on Martin Wolf Review

A fair, lucid and comprehensive "re-capitulation" (the pun is intended, and intended as a warning to those who chase "risk assets") of the situation since Wolf took leave.

http://www.ft.com/intl/cms/s/0/079ff1c6-d2f0-11e0-9aae-00144feab49a.html#axzz1WUfLZVTO

 And pretty much what we have been arguing assiduously at eforum21. - Except that we are also outlining a fresh analytical framework for the "comprehension" of the events unfolding.
One of the puzzling aspects of this rapid "un-winding" of the global capitalist economy is the inability of orthodox bourgeois "economics" to concede and understand that a "crisis" is not occurring merely in the econometric "measurement" of the standard "economic categories" and the tools conventionally used to measure them.
What needs to be realised is that this "crisis" invests especially those "economic categories"! Which is why leaders of all shades (political and economic) fail to see the ground falling beneath their feet! We would invite Martin Wolf to start "criticising" (another pun, on "crisis" and "critique" this time) the "theory" that is currently used more to mystify than to enlighten.

Gold and Labor Standards - Part 4

So the reason why some sections of the capitalist elite long nostalgically for... "the golden age" of the Gold Standard is precisely, as we saw in the previous Parts, that the Gold Standard introduces a strong element of "automaticity", of "impersonality", of "objectivity" to the workings of the capitalist economy to the degree that individual capitalists are left to their own devices (with the repressive assistance of the State, through police and the military) in dealing with worker antagonism over wages and living standards. The Gold Standard emphasises the "private nature" of the ownership of social resources by enjoining to the State not to interfere with the money supply by "printing money".

The problem with the alleged "automaticity" of the Gold Standard is that it is not "automatic" at all! In reality, not only is a regime of specie convertibility strictly unrealistic because there is simply not enough "gold metal" to satisfy the needs of convertibility. Not only is the Gold Standard "deflationary" because it leads to a downward spiral of falling wages, falling consumption and therefore falling production and investment... leading to more falling wages, and so on, until the social fabric itself is torn asunder. But the chief problem with metallic or commodity money (such as gold) is that it is so "private" that capitalists tend "to hoard it" at the very earliest sign of economic or financial crisis!! In other words, just when gold is needed to ensure that falling wages are met with rising investment, the loss of confidence that ensues any recession leads to the collapse of "convertibility"! - With disastrous consequences, as you may imagine!

So we may already begin to foreshadow why the Labor Standard is not only "preferable" to the Gold Standard - but also why it is indeed "inevitable" that "fiat money" and floating or flexible exchange rates become the norm. We will look at these reasons in our next intervention.


Sunday, 28 August 2011

Gold and Labor Standards - Part 3

The difference between Gold and Labor Standards should become clearer by now, after our previous discussions, and so also should be the reason why the capitalist bourgeoisie (the "conservative" wing of it) prefer the Gold Standard to the Labor Standard. The reason is simple. The Gold Standard is very inflexible and represents a much more "biting" constraint on national bourgeoisies to discipline their workers whenever their "wage costs" fall out of line with both "productivity" and "competitivity" - which means "profitability" - as well as with "investor confidence", that is the political "displeasure" that global corporations might feel at the "direction" taken by a government on specific questions (mining, nuclear power, tax policy, and so on).

The Labor Standard has a few very negative features for capitalist because it is tendentially "inflationary" for the reason that it allows governments "to yield" to wage demands by simply expanding money supply and purchasing power (most powerfully in the "helicopter drop" simile). The net effect of this very dangerous Standard is that the entire question of the relationship between "prices" and "values", of the "reward" for capital investment and the "reward" for workers' living labour - this entire "question" becomes immediately political, because the "exchange" between capital (dead labour) and workers (living labour) is no longer determined at the level of each individual capitalist and his workers but is rather determined at the global national level!!

So we can see now how the Gold Standard has the tendency to make the "exchange" - the equal exchange! - between dead labour and living labour seem to be "equal and natural" (natural!) - for the simple reason that it takes place at the "factory" or "workplace" level, in terms of the individual "competitivity" and "profitability" of single capitalist employers! Whereas instead the Labor Standard has the god-forsaken (for capitalists) tendency to politicise the whole "exchange" between us and them!!

You will recall that below we mentioned Michael Woodford (formerly of the Fed, now at Columbia Uni) as an exponent of the "New Neoclassical Economics", which is a take from Wicksell's classic work on Interest and Prices (indeed, his major work bears the same title!). Woodford we discussed in connection with his latest article in the FT, and we are glad to report that Clive Crook in today's FT thoroughly demolishes (not theoretically because he only addresses the policy) Woodford's arguments against QE3. Here is Crook's article:
http://www.ft.com/intl/cms/s/0/7f55246e-cf2d-11e0-b6d4-00144feabdc0.html#axzz1WI7aA6Pr


Gold and Labor Standards - Part 2

Consider the position under a Gold Exchange Standard. In that case each nation-state commits itself through its central bank to convert any banknotes presented to it into specie to honour  and pay for any deficit in its balance of payments. That would mean that, assuming a fixed ratio of gold reserves to banknotes and credit, the central bank would have either to ask domestic banks to hold more reserves at the central bank by raising capital requirements, or else raise interest rates for its loans. In both cases, with less liquidity available, domestic investments would contract and so would imports until the deficit was paid and gold returned to its vaults.

This kind of monetary regime is even more restrictive than fixed exchange rates because the depletion of physical gold, and the need to honour its convertibility, allows even less time to delay austerity or contractionary measures than in a fixed exchange-rate regime because with the latter it would be possible for governments to allow a degree of "mis-alignment" between domestic money supply and that consistent with the fixed rate.

In other words, the Gold Standard would place enormous political pressure on national governments in terms of wages and employment with potentially disastrous consequences in terms of political stability. Worse still, there is no guarantee that even austerity would work if the employment and productive capacity lost in the period of austerity never returned, if one assumes increasing returns to scale for industry.

Let us look now at the situation with fiat money and flexible (not "floating") exchange rates. In such a case, it is possible for nation-states to adjust for any BOP imbalances by simply lowering the exchange rate and making their goods more competitive - which will help maintain employment and production but may also have negative repercussions on domestic inflation, depending on whether nominal wages did not rise with the higher cost of imports.

Now, in this case, the exchange rate level would be determined by a mix of, or rather a "trade-off" between emplyment levels and the rate of inflation. The national bourgeoisie has more "room" to manoeuvre politically, adjusting unemployment slowly until its export competitivity was re-established and the exchange rate and inflation be stabilised. Therefore, if all nation-states started from a given exchage-rate parity, the dynamics of the flexible exchange-rate rate regime and BOP surpluses or deficits would be determined (with a few assumptions) by how well a national bourgeoisie could control its workers in terms of wage levels. So it would not be "gold" that determined the domestic level of activity, but rather "labour", or nominal wages, employment and productivity trade-offs that determine inflation-rate dynamics between the different countries. This is a "Labor Standard".

In the next intervention we will spell out the different political implications of the two "standards".

Saturday, 27 August 2011

Gold Standard and Labor Standard - A Reflectionon the Theory of Capitalists

When we say "capitalist theory" or "the theory of capital" we can mean this in the subjective genitive (the theory of how capitalism operates in reality) or in the objective genitive (capital's theory of how capitalism works). There is a bourgeois theory of capitalism that works on two levels. One is to provide a broad theoretical framework for the way in which capitalist society functions - and this theory is predominantly concerned with the idea of "equal exchange" between living labour (workers) and the owners of dead objectified labour (or social resources), trying to hide the "political nature" of this "exchange", because no-one would ever believe that a human being could "sell" her or his "living activity or labour" in exchange for the past, objectified pro-duct of that living labour!

The other part of the theory is concerned with the "statistical and practical, institutional and political" regularities of the functioning of capitalist industry and society: this branch we can call collectively "econometrics" or "finance theory" or "industrial sociology" or "business management" and so on.

If you look through the history of bourgeois economic theory, you will see how the "theoretical" part of "capital's theory" has always been aimed at rationalising and justifying the "practical" operation of the command of capital (dead labour) over living labour (workers). In other words, given a certain "reality" of capitalist practice of command, the theory has been "adjusted" continually to allow for the "trans-formations" of that command, for its meta-morphoses.

There is a "space", then, a space both theoretical and practical, and a "time" in which bourgeois theory correctly describes what is happening "in reality". But then there are times - we will call these "times of crisis" - when, as is happening right now, capital no longer has a "realistic theory" of what is happening because the theory no longer "correctly describes" a reality that is changing too quickly for it to understand. THAT is the time when OUR theory has to come into operation to challenge practically, politically as well as theoretically, the "self-understanding" of "bourgeois economic theory". In the next intervention we will look at the discussion over the Gold and Labor Standards as an illustration of how this works.

In the meantime, if you wish to look at how "confusion" reigns in the propounders of bourgeois theory, you may wish to look at these two "revisionist" accounts, one from Paul Krugman and the other from John Kay:

http://krugman.blogs.nytimes.com/2011/08/25/irregular-economics/

http://www.ft.com/intl/cms/s/0/faba8834-cf09-11e0-86c5-00144feabdc0.html#axzz1WI7aA6Pr


Friday, 26 August 2011

Obama, Rooseveltian Resolve and the Capitalist World Economy

As you can see from this FT article http://www.ft.com/intl/cms/s/0/4ee57fe8-cfe3-11e0-a1de-00144feabdc0.html#axzz1W84bKW00 the choices open to President Obama are now as stark as "the fracture" in the US ruling elite that imposes them. The options are either to follow down the path of "austerity", of repaying "the public debt" that in fact is a "private" debt incurred by capitalist finance in the speculative bubble occasioned by the re-cycling of profits made possible by the Chinese dictatorship on the blood sweat and tears of its workers - and, by so doing seek to reduce our living standards to a level resembling that of the slaves who built the Pyramids. Or else, the other option, is to return to the better more peaceful path of "relative exploitation" whereby capitalist industry shares its ownership of social resources with workers through better living standards.

The trouble with the second option, of course, is that higher wages and living standards also entail lower "profitability" for capital - which can be re-established through higher "productivity". The demand for the higher product ahould come from those underdeveloped countries, including China, provided that their governments are thoroughly democratised and so their economies can be liberalised (the two processes go together).

The "absolute exploitation" option is akin to that which presented itself to Western democracies after World War One when they sought to re-introduce the so-called "Gold Standard", which in fact was a Gold Sterling Exchange Standard. That "standard" amounted to a "deflationary regime" whereby nation-states sought to redress balance of payments imbalances by reducing domestic consumption through lower wages. But it was the "downward stickiness or rigidity" of wages that made this "balancing" impossible. And the stability of the system derived from the ability of Britain to run huge deficits on current account that were "balanced" on capital account with equivalent "surpluses" and gold flows from the British Empire (India, Australia and Canada) which enjoyed huge trade surpluses with the rest of the world (US and Latin America mainly).

As ought to be clear by now, this system could not endure. It took President Roosevelt to abandon the Gold Sterling Exchange Standard in 1933 and replace it with a focus on boosting domestic demand by transforming the working class into the engine of capitalism - using its antagonism to improve productivity, encourage innovation, and lead the US to world leadership. That was capitalism at its best - and what allowed the US to defeat the dictatorships founded on "absolute exploitation" - Japan and Germany.

What we have called "the fracture" on this site is now in evidence. The capitalist world is on a Labor Standard, which means that with free flow of capital and trade, any improvements in productivity and innovation are quickly transmitted to nation-states that repress domestic wages and consumption, so that they run a "surplus" which they then use to impose "austerity" on the deficit countries and, by so doing, strengthen their own industrial base and boost unemployment whilst maintaining low inflation.

Normally, nation-states with free labor markets and democratic institutions will see their wages and consumption rise with the rising currency which will lead to a "balancing" of trade and capital accounts. But when dictatorships such as the Chinese Politburo or the ex-Nazi German ruling elite or the Japanese counterpart are involved, their response to a rising currency is "sterilise" capital inflows by purchasing foreign reserves or hard currencies such as the dollar and gold - that is why China, Japan, Germany and Taiwan and Korea have the biggest reserves in the world! This "mercantilist" behaviour exacerbates the imbalances and is a form of exporting both inflation and unemployment, unless... Unless the deficit countries take measures to devalue their currencies and pay for the deficits in "paper" whilst taking appropriate measures to imcrease their "competitivity" through higher productivity.

But this is hard to do when you face dictatorships like China's that keep exploiting their workers and "stealing" technologies and, with the export profits, subsidise their state-owned enterprises that then seek to take over the world. Something has to give! Let us hope that Obama finally understands this vicious circle and exhibit some of that long-awaited... "audacity of hope"!







Even Martin Weale Calls for QE2 in Britain!

Martin Weale was my seminar leader at Cambridge - very nice fellow on a personal level. Though of a "hawkish" persuasion, he has called for another round of quantitative easing in Britain to rescue the sagging economy there! Here is the FT article. Note that this is happening just as many orthodox imbeciles are trying to cow Bernanke into inaction!

http://www.ft.com/intl/cms/s/0/369631fc-cf35-11e0-b6d4-00144feabdc0.html#axzz1W84bKW00

Bernanke and QE3 - Reprise

Paul Krugman says pretty much what I have been saying here
http://www.nytimes.com/2011/08/26/opinion/bernankes-perry-problem.html?_r=1&partner=rssnyt&emc=rss

He also links a paper by Bernanke that we discussed in connection with Bernanke's general approach to monetary economics on this site (just look for titles with Bernanke or "Notes OnMinsky").

The situation, in a nutshell (and lots of nuts it has, too, in the semblance of learned bourgeois economists!), is that the economics profession is trying to save its "economic science" by preventing Bernanke to do what he had always wisely said he could do as a central banker to rescue this rotten miserable system: and that is, to make it "costly" for the owners of social resources that they do not wish to put to use because it is not "profitable" to do so.... "to use it or lose it"! In other words, deploy your capital or lose it to inflation!

Inflation would also have the magic quality to cut the "real" cost, in terms of social resources devoted to it, of repaying existing public debt and therefore lightening the burden from workers and government, allowing more "productive" investment to take place and more resources to be devoted to improving social and economic infrastructure.

And this in turn would allow the US and Western economies (still capitalist) to regain employment levels and political stability against those "mercantilist" Asian and "emerging" (all "export-oriented") economies that rely on the "absolute exploitation" of their workers! This would occur because dollar inflation would force their exchange rates up and make their useless cheap exports uncompetitive and force them to improve their productivity and internal domestic demand, rather than look to accumulate reserves for the dictatorial regimes that run them!

So there are a number of things that QE3 would help achieve not just domestically for the US but also globally by forcing capitalists worldwide to improve the living and working conditions of their populations, rather than "rush to the bottom" with competitive devaluations. The first and foremost task must be to destroy the Chinese dictatorship that poses a clear and present danger to the entire world!

Soon, I will seek to review the New Neoclassical Economics of Michael Woodford and the like. Cheers.

Bernanke and QE3

The battle-lines are drawn. We have "the confederacy of bourgeois dunces" on one side trying to intimidate Bernanke into inaction simply to preserve a "status quo" that is fast slipping out of their control. And the amasing thing is that bourgeois economists vote "with their heads" against QE3 just as steadfastly as the "markets" vote "with their feet" in their precipitate "liquidate everything!" of share exchange rout!

You really have to grant it to these utter morons, idiots and bastards who would rather "save their insane science of capitalism" than actually save the Titanic of capitalist industry and society as it sinks! The utter irrebuttable reality is that only quantitative easing, only the control and command that "money" and the power to create money gives is what stands between the survival of this system at the moment and its complete and ignominious COLLAPSE!!!

Bernanke knows his history of the capitalist wconomy well. And he knows it at its direst moments. That is why he will not fail. He knows that the only thing that can rescue this insane system is if the "creditors" and the corporations that hold social resources "privately" are forced at the point of the inflationary gun to spend their money or forever lose their "resources"! More on this later, friends.

Thursday, 25 August 2011

A Confederacy of Dunces - The FT Editors, Michael Woodford and the QE3 Opposition

The bourgeoisie and its acolytes are busy advising Bernanke not to indulge in a bout of QE3 because, so they say, it will be futile - it will not force corporations to invest and will result only in inflation. This argument is based on a palaeolithic understanding of how the capitalist economy works (or doesn't). The FT also has an editorial on the subject today.

Those who are interested in the theory of the New Neoclassical Economics can find it in this review article.
http://docs.google.com/viewer?a=v&q=cache:A1Vx7xOkLaUJ:www.columbia.edu/~mw2230/Symposium/BoianovskyTrautwein.doc+M.+BOIANOVSKY+(1995),+%22Wicksell's+Business+Cycle%22,+European&hl=en&gl=au&pid=bl&srcid=ADGEESh06nf9wLJGKZT06rjqhLhzJ64KBpSSFlcXcMhBKOUGX5YowUEGK8bGUQKsGJhoZ18sv3ndkcflKzDqKr4_fFMBeVvakSRKK98xrpx1dWajLsp1DlxHBXIkqgKMsVDwemTr24Sk&sig=AHIEtbToNgaNun3rJHu5CFV8fNI8qRpIxQ

What these patented morons do not understand is that IN ORDER TO FORCE CORPORATIONS TO INVEST IN THE US AT THIS STAGE OF THE CAPITALIST CYCLE, YOU SIMPLY MUST THREATEN THEM WITH UNPRECEDENTED INFLATION!!!

Only THIS WAY will they know that unless they invest their capital will be destroyed, eaten away, wasted, annihilated by an inflationary tsunami!!

Furthermore, and we would ask our friends to go back to the theoretical pieces on this site for further elucidations on the matter (we simply do not have the time, busy as we are with the 'Nietzschebuch'), there are utterly PARAMOUNT geopolitical and geoeconomic reasons why the US MUST flood the world with greenbacks to destroy the export-dependent regimes of China and Germany, as well as Japan and Korea, that will otherwise destroy our own more democratic regimes!! (See our piece on "Absolute and Relative Exploitation".)

We really do not have time to re-contest the theory here today, but we would invite our friends to look through our theoretical pieces on this site. Happy reading!



Schumpeter, Innovation, Markets and Profit Motive

With the retirement of Steve Jobs as Apple CEO, we wished to reward our friends with a short study (only notes for the Schumpeter chapter of our 'Krisis' book) that would help us understand the role of the entrepreneur in the capitalist economy.
Of course, as a human being, we sincerely wish Jobs all the best. But we have to desist from and resist all "hagiographies" of capitalist entrepreneurial roles - with which wi will doubtless be bombarded over the next few days and weeks. Cheers to all.



Schumpeter’s “theory of economic development” must be placed in the philosophical-intellectual context of the “empiriocriticism” of Ernst Mach adopted and expounded by the ‘Wiener Kreis’ (the Vienna circle of philosophy) according to which science must be based on ‘experience’ and must dispel all ‘metaphysical’ notions.



Contrary to the neoclassical economic concept of “general equilibrium”, the experiential reality of capitalism is that the economy is rarely in a state of “equilibrium”. Schumpeter notes that what we witness in capitalist history are rather phenomena associated with dis-equilibria: the capitalist economy is in a constant state of “evolution” (Entwicklung) which entails both “trans-formation” and “growth”. In short, classical and neo-classical economic theory with their “Law of Value” (whether Labour-Value or Utility) could not explain theoretically the reality of capitalist “development”. Equilibrium and the Law of Value lead only to economic “stagnation”, they represent only a “circular flow” (Kreislauf) of goods exchanged in a state of “pure competition” (reinen Wettbewerbs). What needed to be explained was the empirical existence of “crises” and “growth” in a capitalist economy – but “growth” understood not as mere “quantitative expansion” or “greater output” (which is what Keynes understood), but rather “growth” as “development” (Entwicklung), as qualitative leap, as….progress, as….”Innovation”.



Schumpeter pays grateful tribute to Marx for being the only classical theoretician to identify the “evolutionary” force of capitalism. But he could not espouse Marx’s “metaphysical” notions of “value” or “socially necessary labour time”. The question then arose for Schumpeter: if “value” or “utility” are not capable of explaining the evident “empirical phenomena” of capitalist “crisis” and “development”, what other driving force or “agency” is there that is “endogenous”, “intrinsic” to capitalism that determines and explains its historical behaviour?



Here Schumpeter realizes immediately that the one factor that can lead capitalism out of its “circular flow”, the factor that leads to the formation of new “enterprises” and new “markets”, is the process that “destroys” old “enterprises”, that “destroys” old “markets” and….”creates” new goods and services, a process of “entrepreneurial Innovation” that gives new “enterprises” a “competitive edge” and leads to the formation of new “firms” that rapidly “conquer” the “market” and by so doing establish new “monopolies” able to absorb higher “profits” and, indeed, to create more “profits” from new “markets” as these new firms “expand” the “needs” or “demand” of “consumers”.



Schumpeter takes pains to explain (in “Business Cycles”) that it is not “consumer demand” that drives “Innovation” because, if anything, this demand tends to be “conservative” and “retrograde”. No, what must drive this demand is an “innovative”, “entrepreneurial spirit” (Unternehmergeist) that drives the process of “technological innovation” in a dramatic dis-equilibrating, “crisis-inducing” struggle of “creative destruction” (shopferische Zerstorung).



Three questions arise at this precise and dramatic juncture:- first, if indeed it is the “spirit of the entrepreneur” (Unternehmergeist) that drives the process of “innovation”, how then can this necessarily “subjective”….”Spirit” (Geist) be the pro-duct of the “objective” process of capitalist pro-duction? How can something as “subjective” as “the spirit of the entrepreneur” give rise to and occasion a complex technico-scientific process that takes place in large monopolistic firms that already constituted the reality of capitalism in Schumpeter’s own time?



And the second question is, even assuming, as Schumpeter allowed in his later work (“Business Cycles”) that the process of “innovation” and “creative destruction” is indeed subsumed within the large “monopolistic firm” rather than in the heroic figure of the individual “entrepreneur”, -  even allowing all  this, what is it then that “motivates” innovation and development? Why indeed do “entrepreneurial individuals or firms” engage in this “innovative” process of “creative destruction” except to maximize profits or market share or a mixture of both?



The third question, a corollary of the previous two, is the most important: - what does “profit” mean in this process of “Entwicklung”?



In a future contribution we will look at the extreme lengths Schumpeter went (in the ‘Theory’ and in ‘Business Cycles’) to dis-count the profit motive as the “driver” of “innovation” and capitalist “development”. – Which is why he did not tackle the meaning and source of “profit”, relying surely on Bohm-Bawerk’s theory of interest.



The above presentation shows how in effect Schumpeter could “empirically” contest the scientific relevance of “equilibrium”, which could only serve “didactic” or “heuristic” (Hayek in I&EO) purposes. Even in his review of Bohm-Bawerk, Schump had stressed the “elegance” of his theory and its empirical foundation. But Schump’s own philosophical attachment to “empiricism” - whilst it drove him to confront the “reality” of crisis and cycle and development as “intrinsic” moments or aspects of capitalism - was always going to relegate him to the sphere of mere observation and so prevent him from understanding the reality BEHIND the empirical data. Indeed, the “subjectivism” of the “Unternehmergeist”, Schump’s tribute to bourgeois “Individualitat”, could NOT be reconciled with the ‘Rationalisierung’ propounded by Weber (as Schump wished at footnote 2 of Ch.2 of ‘Theorie’) precisely because the “objective” “organizational” subsumption of the process of “Innovation” relegated the “entrepreneur” to a mere “manager” and deprived the “captain of industry” of its “Individualitat” within the process of “Innovation”.

(Again the whole “science of management” and “theory of the organization” that recently received great bourgeois approbation with the award of the Nobel Prize to Oliver Williamson, achieve nothing more than TO MASK capitalist command behind “the theory of the firm” and “transaction costs” and “contractual enforcement”- PURELY, again, TO DISGUISE the real nature of the “political” antagonism within the capitalist firm as a structure of COMMAND, of force and violence, in terms of “rational expectations” or “bounded rationality” – again within that ‘Rationalisierung’ indicated by Weber. The “limited rationality” of the firm – the “rationality” that de-limits its “boundaries” [cf. R.Coase, “The Limits of the Firm”] and de-termines its “internal organization” – is clearly an “instrumental rationality” that only serves to hide the overall function or agency of the “firm” as a structure of command. EVEN the reduction of “profit maximization” for the purpose of retaining “market share” can only be seen as an orientation toward the realization of profit and the extraction of “value”.)



What is lacking in Schumpeter is the ability and willingness to admit, to acknowledge and understand that the “entrepreneur” ALSO is “constrained” and “compelled” by the relations of production. What is lacking is the “motivation” as “will to power”, as the need to command and control the process of pro-duction THROUGH and BY MEANS OF “innovation”. The ‘COM-PULSION’ of the “entrepreneur” or “monopolistic firm” is the compulsion of “profit-making” – THAT is the “battlefield”, the “system of forces” in which individual capitalists must “com-pete” or fight. NOT for the sake of “competition” or “innovation” (as Schump always attempts to argue – see esp. Ch. On ‘Capital’ in the Theorie), but rather TO RE-PRODUCE the relations of production that have brought about the “domination” or “command” of the capitalist-entrepreneur. So here the figure of the entrepreneur starts to e-merge in its TRUE CHARACTER….as “Capitalist”!



But once the “motivation” of the entrepreneur is explained and com-prehended, what RESULTS from it, its “out-come” is NOT the “entrepreneurial” function but RATHER the “political” function of “command” of the antagonism of the relations of production – and here we return to Weber’s “leitender Geist” which is a much more consistent agency or figure AT THE END of the ‘Rationalisierung/Bureaucratisation’.

Tuesday, 23 August 2011

Contrast with Heidegger - Nietzsche, History, Will to Power

This excerpt from our Nietzschebuch is intended as a reward to our visiting friends. This book was initially meant to be only a chapter of Krisis:Exegesis and Critique of Capitalism, but it swelled into a separate work. We truly hope you enjoy reading it.




The question was always to reconcile the freedom of the Will with the phenomenon of the Political. Is there something in this “freedom” that leads rationally – that is, legitimately in law, ethics and morality – to the reality of the State. This question eludes Schopenhauer as much as it will elude another strident opponent of Hegelian philosophy, Kierkegaard, both of whom simply liquidate the jusnaturalist solution: impossible to locate in the State the “agreement” of individual wills when these are irreducibly in-dividual and uncompromisingly “egoistic” in their pursuit of self-interest (Schopenhauer) or existential decision (Kierkegaard). For Schopenhauer, the State can exist at best only “negatively” as Police; it can protect individuals from the ubiquitous Eris of the Will to Life by ensuring that they do not harm (noli ledere) one another. And even that “negative value” is derived not from the Will but from the reflective reason, the intellect that subtracts itself from the futility of the Will and retreats to Nirvana. The State is an artifice that merely protects what belongs to individual wills at the time that the social contract is concluded; it is a preservation of the status quo ante, but it cannot legitimize “rights” that preceded the social contract in the state of nature – for no such “rights”, natural or divine, could possibly exist in a state of civil war.



Schopenhauer misses the problematic of Hobbes and then of Hegel working on the foundations of British jusnaturalism and political economy: whilst his critique of jusnaturalism correctly and comprehensively dimisses that doctrine on the strength of Hobbes’s “scientific-rational” approach, his State is unfounded because it arises from a principle of “do no harm” that has no rational or other origin in the Will to Life as he conceives it; he fails to identify a “material carrier”, a corpus and motive for the institution of the State . This is what Hobbes had achieved by attributing the institution of the State to the dira necessitas imposed on the Will to alienate its Power to a Sovereign in extremis, out of fear and from the threat and apprehension of imminent violent death.



Yet even Hobbes’s “dira necessitas” runs into difficulty in two directions: upstream, it does not account for the basis of the “rationality” of the Will in deciding to exit the civil war of the state of nature, the bellum civium; and downstream, even if the new civil state governed by the Sovereign guarantees the “possessions” of each member at the time of the social contract, it is still far from clear how the future conduct of “exchange” of these possessions is to be regulated. And in any case, Hobbes does not account for how the Sovereign, the State, can independently guarantee the execution of the social contract. The Hobbesian schema still falls short in a psychological sense (accounting for the “rationality” of the free will) and in an economic sense (accounting for the rules of the new civil society as governed by the State).



It is the “reconciliation” of the Will with the Political that will form the problematic of Hegel – the Arcanum of the State. If the Political is real, it is because it is pro-duced by the Will. But the freedom of the Will is not a philosophical abstraction: this freedom must be grounded on the very concrete reality of human communities, and even deeper on the intrinsic truth of consciousness and reason that reflects upon itself as it inter-acts with the Other – both nature and society. If it were possible to derive logically the rationality of the State from the dialectic of self-consciousness, then the Will could realize its freedom truly and rationally through a material civil society that would pro-duce both economic Value for its material reproduction and political Value for its political Vergeistigung in the State. The reflection of this evolution in time and space, in history, would be the proof that the understanding can com-prehend the phenomenon, that history can tame nature, that Subject and Object can realize the Idea dialectically – that “what is rational is real and what is real is rational”.  



As early as the Untimely Meditations, Nietzsche had overcome the negatives Denken of his “educator”, Schopenhauer, which he perceived to be “powerless” to contrast the Hegelian dialectic. True it is that German Idealism from Leibniz to Hegel is an “astute theology”; that Schopenhauer restores our vision of history to “older, more powerful” ways of seeing events and men. But in demolishing the moral theology of Kant and Hegel, Schopenhauer stares into the abyss of meaninglessness and takes “honourable fright”: if the old values clash with reality, it is reality that he rejects and discards, in favour of Nirvana. In the Second Meditation especially, Nietzsche reflects on the phenomena of history, determined to see “what is rational in reality, not in reason and least of all in morality”. And what history reveals is that its “happenings” and “e-vents” are not the pro-duct of human free will or of a divine pro-vidence, that they do not dis-close a progressus or an e-volution. Rather, the radical critique of history and of human values, including metaphysics, shows that our very intuition of time and space, of causality and of the meaning of existence induce us to believe that the Will is not “free”, that the very “transcendence” of the Will over life and the world is the “result”, a “sign” and a “symptom” of the real antagonism between instincts of freedom that seek to impose themselves on other instincts.



The Will therefore cannot be interpreted in this trans-scendental fashion, but rather immanently; - not as the Subject able to dominate and make sense of the Object, but rather as a force that is within life and the world and can understand these only as a perpetual flux, an Eternal Return. It is not possible for anything in life and the world to com-prehend them, to bestow a Value on them: to attempt to do so would mean that the entity assigning such values could stand “outside of” life and the world. It is life and the world that as-sign values as a result of its mani-festation as Will to Power: and it is this mani-festation, this “showing” or “happening” (Geschehen), this e-vent that is the focus of Nietzsche’s immanentist approach to life and the world.



In this light, the novel intuition of history, of time and place in the Second Meditation, only touches on time and place as the horizon of Being – hence, of Being-as-Becoming. Nietzsche is not concerned with ontology except to establish that all ontological efforts “to close the circle” of interpretation of life and the world must end up in the desert of nihilism, in the fixity and void of “presence”. It is beneath the horizon of our intuition of time and space that history begins; and it is in that time-place of immanent experience that we must con-fine our under-standing, our com-prehension and con-ception of life and the world. Within the Hobbesian and Hegelian problematic of the Will, Nietzsche is concerned not with the sphere of inquiry that treats of the relation of the Will with the meta-physical, with the “totality” of reality. His focus is not on the “freedom” of the Will as the ambit of its trans-scendental being, its being “beyond” (meta) the physical life and the world (physics), but rather with the “need-necessity” of immanent existence.



It is not the “contingency” of existence that interests Nietzsche – not what lies “beyond” life. It is not the relation of Being to not-Being, to nothing-ness, that draws his attention. Nor is it the “existential pathos” of the individual conscience and its “decision” or “resoluteness” before the abyss of death. Everything that is occurs “within the Will”. Bluntly put, Nietzsche, like Hobbes and German Idealism, is not concerned with the anticipation of death as establishing the “authenticity” of the contingent being, the Da-sein, as “pro-ject”, as “possibility” in its “being-in-the-world”, as a “being among beings”. This “ab-stract”, transcendental quaestio occupies the “boundary” of Nietzsche’s intuition of time and place but only to the extent that it helps us situ-ate human being between “the first thing” and “the last thing” (the titles of the initial sections of Human All Too Human). He is concerned neither with genesis nor with eschaton: it is the place be-tween the walls of past and future that he in-habits. Nietzsche is not concerned with the anticipation of death: the Eternal Return, the amor fati, the love of life make the question redundant. He is concerned rather with the why and how human beings live and die as they do! His aim is pre-eminently and immanently political; it is to trace the mani-festation of the Will to Power as instinct of freedom within that realm of the human “memory of the will” that we call “history”. This is his istorein (inquiry, history). Nietzsche is dealing with the same problematic that Hobbes and Hegel faced – although his approach and answers differ radically – critically! - from theirs. And they differ most conspicuously in the characterization of the Will as well as in his account of its historical manifestation in “the onto-geny of thought”.

Monday, 22 August 2011

Disparate Topics

Just a quick note to signal to our friends a few interesting articles in financial media. The first is Tony Jackson at the FT with these two useful stories that mirror fairly closely what we have been arguing here, but without the "analysis":


The next article is from 'MoneyWatch' where Gertler comments on the "historical" approach of Bernanke at Jackson Hole - something we have pointed out repeatedly on this site

This next article from a former Reserve Bank of Australia economist I know personally gives a useful summary of the options open to Bernanke. But Grenville, like most other commentators, fails to see what is truly powerful about quantitative easing: the effect it has on the dollar's exchange rate and on exporting inflation to other countries (especially China and Germany and Japan) raising their exchange rates and making US industry more competitive, thus easing the toll on US employment. Another crucial point is that negative real rates on treasuries force capitalists to invest, and higher rates of inflation reduce the real cost of the US debt.
We have stressed these points on this site on many occasions: it is difficult to understand why many "analysts" fail to see them. Tony Jackson's article linked above is a very useful corrective on all this.

Finally, again from 'MarketWatch', this piece by the usually reliable David Marsh - but this time he is wrong about the choice the German elites will make (he says it will be against the euro, to preserve their "efficiency/productivity" - we say he is quite wrong because Germany's elites have no choice but to stick to Europe and the euro)
In our next post we may reward some of the more "philosophically" inclined friends with a piece on "Nietzsche and Heidegger on History and the Will to Power". Cheers.

'Mr.Keynes And The Classics' - Note On Milton Friedman's Interpretation of Keynes


  1. June 6 2:24am | Permalink

"Mr. Keynes and the Classics" could be the title for my most recent reflections that can be linked to Gavyn Davies's expression, "out of ammo". What does it mean, let us ask, to be "out of ammo"? Who is out of ammunition, and what precisely is that "ammunition"? Obviously, for there to be "ammunition", somebody must be "shooting" or "targeting" something - and obviously the referent here are "the monetary authorities", the "target" they are aiming at is "growth" or "output utilisation" and the "ammunition" is the "liquidity" or broad money that they can "inject" into the economy. Those who believe that such liquidity injections have or can have a lasting effect (more than a so-called "first round" effect) on the economy through the "monetary transmission mechanism" must believe in the "non-neutrality" of money whether in the short or the long term.

I think Milton Friedman was right to insist that Keynes's emphasis on "liquidity preference" meant that he believed that most of his "revolution" in the 'General Theory' had to do with "the liquidity trap" - the infinitely elastic demand for money even when interest rates are at "the zero bound". What this means is that ultimately, despite what much Keynes "hagiography" has to say, the Bloomsbury socialite remained firmly in the theoretical camp of "the Classics" - hence, John Hicks was right to title his famous essay that way. True, "in the long run we're all dead", but the long run is what "conditions" the capitalist economy - and Keynes never intended to overturn the neoclassical approach to economics despite the fact that he adopted Marshallian methodology instead of the Walrasian (Friedman again). After all, was it not Keynes who wrote with regard to Marshall (his predecessor in Cambridge) that when Jevons discovered marginal utility he leaped up and down with joy like someone who sees steam lift a pot lid (or words to that effect), whereas Marshall watched carefully and set out to build a steam engine??

But remember that for a scientist like Marshall “natura non facit saltum”. The coherence and generality of a theoretical system had to be anchored to its practical relevance. The “gravitational centre” of the system (Schumpeter’s “Gravitationszentrum”) remained always, even for Keynes, “the long run equilibrium”. The “crazy variables”, those “stubborn facts” that could be “reconciled” with neoclassical theory (except in its  “synthesis”) – the liquidity trap and the rigidity of money wages – were still “extreme assumptions”  within the neoclassical framework!  However treacherous it might be for Keynes, money is still “a bridge” between present and future – meaning that “in the final end” it is the marginal efficiency of capital that determines investment – were it not for those stubborn facts of capitalist reality. It is simply not true – it is entirely false! – to state and argue (as did Minsky among many others) that for Keynes “money” was more than a “veil” and that he saw it (like Marx) as “central and essential” to the theory of the capitalist economy. Not at all! Keynes was light years removed from Marx! Keynes’s own “flirting” with the insane ideas of Silvio Gesell about the “moneyless” economy (revived lately in Michael Woodford’s Wicksell-inspired ‘Interest and Prices’) show conclusively that he always and everywhere conceived bourgeois economic “science” as the only possible “science” of the economy – and a fortiori the capitalist economy as “the only possible” economy!




Jevons and Walras belong together. Marshall and Keynes preferred the short run: but all four were in the neoclassical camp - no matter what Minsky and others had to say about it! So where was "the Keynesian Revolution"? Simple. It was in the role of the State in the capitalist economy. The whole "classical" notion of Political Economy (Ricardian or neoclassical) consisted precisely in this "homologation" or "equiparation" of the s e p a r a t e spheres of Politics (the State) and Economics (the market). The one was not supposed to interfere or intervene in the latter - the "self-regulating" market. But Keynes, who knew that Marshall's pragmatism had led him to write an "economics of industry", had the good fortune to witness what could happen if Politics truly began to tamper with Economics in the guise of "Rooseveltian Resolve" - the New Deal. The 'General Theory' without the New Deal is unthinkable.

What's that I hear? We have "run out of ammo"? Not if Roosevelt had anything to do with it!! And I hear that Ben Bernanke is a great admirer (like me) of FDR. Let's see what happens...

Friday, 19 August 2011

From "Gap" To "Fracture" - Discussion of Okun's Law and Verdoorn-Kaldor Law


| May 9 5:33am | | Options"As we document in this paper, the close relationship between output growth as measured
by real GDP and employment generation that characterized the U.S. economy over the
two decades after World War II has been weakening since the mid 1980s."
I open the Basu-Foley paper linked above by Davies, and I find this "revelation" (what in reality ought to be an "open secret") right in the Introduction. In the conflict between two "laws" (that are not "laws" in any physical sense, but only observable statistical regularities in the capitalist economy), we witness a "loosening" of Okun's Law, particularly the "gap" between decline in employment and "potential output", whilst we see a greater "seizure" or "biting" of the Verdoorn-Kaldor Law tracking the stochastic link between productivity and output.
I say that this ought to be an "open secret" because what we are experiencing, in a nutshell, is consistent both with a "jobless recovery" and a "creditless recovery" - due to the fact that since the mid-1980s, under the massive weight of "globalisation", multinational corporations have been able to increase productivity and shed workers at a proportionately higher rate than small-to-medium enterprises (SMEs), whilst increasing their "degree of monopoly" in Western economies through self-financed mergers and acquisitions as soon as share prices showed signs of recovery from cyclical recessions.
So while unemployment remains stubbornly high in Western capitalist economies, profitability recovers much more rapidly. But here lies the problem or problems. First, the proportion of "transfer payments" in the US has "doubled" (!) since the 1970s. Worse still, that "profitability" is earned from production and sales that rely increasingly on "emerging markets" - that is, far from the capitalist "metropolitan centres" - and, within the "metropoles", with growing "tensions" between the "local" bourgeoisies, namely the US on one side and Germany and Japan on the other.

Here I wish to highlight (cryptically) two sources of "tension" for the wage relation (on which capitalism is founded): First, the "link" between what can be termed "productive" and "unproductive" labour and "profitability" is "slipping" or "loosening" because the "political" bond of the wage relation is also slipping. Second, this process is "exasperating" the very process of "globalisation", and particularly the ability of "multinationals" to protect and preserve the political stability of the wage relation in "emerging countries" that grow worryingly more "distant" in all senses from the "metropole"! (Cf this Ft story on multinational banks: http://www.ft.com/cms/s/0/d2253c82-7a60-11e0-af64-00144feabdc0.html#axzz1LO5gFBdI ).          I will seek to expand on this as we go. A rapid perusal of my posts on this Blog and at Economists' Forum and, earlier, at Martin Wolf's Forum will show that this has been a "pet" project of mine for some time.
Incidentally, Basu and Foley quite appropriately include the "Marxian" narrative in their study (replete with citations of Bob Rowthorn, my erstwhile supervisor). But it is these "categories" that we have in our sights....

Unfortunately the large work I am writing (called "Krisis", an exegesis of capitalism which covers both the economics as well as the philosophy of this mode of production) is taking a lot of my time now. I just wished to highlight a few themes or "threads" that ought to be woven together. The first is the relationship of Okun's Law and the Verdoorn-Kaldor Law that I commented upon (with appropriate links) in the previous Davies Blog. Very broadly, if we combine the two "laws" (in reality they are only stochastic regularities or relationships), we will see that whilst the relationship between employment and growth has "loosened" in the sense that more growth does not mean more employment ("jobless recovery"), also the increased "productivity" in certain sectors (manufacturing, selected services) has maintained profitability for enterprises overall while, at the same time, the swelling of the finance sector has compounded the skewed distribution of income and, at the same time, distorted the definition of "output" - meaning that capitalist firms have been paying themselves out of normally "unproductive labour" in financial services. The upshot is that relatively lower employment levels have sustained higher profits and the skewed distribution of income toward multinational firms that have shed more workers "in the metropole" whilst benefiting from the financial crisis and the "creditless recovery" to expand their "degree of monopoly" - hence the references to the "kinked demand curve" of Hall & Hitch and Sweezy. It ought to be considered that the aim of capitalist enterprise was never "to maximise profits". Given that "profit" can be realised if and only if its monetary expression has any "political meaning" in terms of the wage relation, it is obvious that capitalist firms will seek "to control" or "captivate" the so-called "market", rather than pursue an abstract "maximisation of profit". When firms invest, "profit" is only one consideration: the "viability" in the long term of that "profit" is a far more important determinant. In other words, the question firms ask is: - what "degree of control or 'monopoly'" will a given pricing strategy give us in and over a certain "market" (remember that this notion of "market" is a fable worthy of Aesop - that of "competition" is more complex because there are definitely inter-capitalist rivalries that have to be considered within the overall need to maintain the wage relation). There are then several important "developments" that arise from these studies over the growing "thin-ness" or "brittle-ness" of capitalist enterprise in Western nation-states. One is the progressive "distancing" of multinationals from their "metropoles" as they venture further afield into "emerging markets" that grow more dangerous each passing day both politically and financially. I mentioned this point in the previous Davies Blog and (would you believe?) the next day this article appeared in the FT discussing my very point http://www.ft.com/cms/s/0/d2253c82-7a60-11e0-af64-00144feabdc0.html#axzz1LO5gFBdINext, there is the whole matter of "financial repression", something on which I have been insisting even on this Blog for a while (capitalists have "nowhere to go") - another problem afflicting multinationals in terms of where they can park liquidity (even if banks do it for them). Gillian Tett comments in today's FT on this theme and links a fresh study by Carmen Reinhart (prolific this lady!) on "The Liquidation of Government Debt" here http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdfIf ever there was a contra-diction, it is Reinhart arguing (with Rogoff) that "this time is NOT different", and then doing a study showing exactly how governments get out of the bind! Finally, (is this lightening speed or what?) there is the entire impact on global capitalism of how finance has got out of hand and now poses an evident threat to the "manageability" of the entire system (more work for Bernanke there). Here is the all-important paper discussing the issue by Schularik and Taylor http://www.econ.ucdavis.edu/faculty/amtaylor/papers/w15512.pdfThese are all matters that will occupy the last chapter or two of my work. Kindest regards to all.
PS: Just one quick observation about that Schularick and Taylor paper (the last one I linked). The all-important graphs to look at there are Figures 2 and 4 - which will tell you that the proportion of loans to broad money has shot up to the sky in recent decades, and (Fig4) will tell you that banks hold a declining proportion of assets in government securities (which means that central banks have great difficulty in "overseeing" "private" credit).
Now, just read through this beauty from this article at pp. 16 and 17:

"Why are output losses so large today despite more activist policies? Some other forces
might be at work here. Governments have made more efforts since the 1930s to prevent negative
feedback loops in the economy and have sought to cushion the real and nominal impact of
financial crises through policy activism. But at the same time the financial sector has grown and
[17] increased leverage, expanding the size of the threat even as the policy defences have been
strengthened. As a result the shocks hitting the financial sector might now have a potentially
larger impact on the real economy, absent the policy response."

And if you join all these dots together, they tell one thing: the role of "finance" has expanded because the role of "government" has expanded - because capitalist governments need to "control growth" for political reasons . But as a result of the need for this greater "control of growth" we have seen capital seek to evade the corresponding government "growth of control" by means of greater financial autonomy (credit booms, and busts!). The result, as you can see, is much greater "financial fragility".

The upshot? The upshot is that the forces of reform are winning. The only solution is (by force of things - vi rerum)...greater participatory democracy. (Incidentally, Martin Wolf's Column today on EU sovereign debt illustrates this point beautifully - I link it for my own records
http://www.ft.com/...html#axzz1LO5gFBdI ). Cheers to all!

New Post Tomorrow

For the friends visiting, we will have a post tomorrow discussing the operation and significance for current developments of two of the most reliable statistical relationships in capitalist industry: Okun's Law and the Verdoorn-Kaldor Law (usually called the Kaldor-Verdoorn Law, incorrect chronologically). A very interesting discussion. See you then!

Thursday, 18 August 2011

Comment on Gavyn Davies Column

http://blogs.ft.com/gavyndavies/2011/08/18/what-went-wrong-with-the-global-recovery/#axzz1VM8gmTKq

If we keep going around in circles from 'households' not wishing to spend to 'firms' not having the demand to invest as a result - and then from 'firms' not wishing to invest to 'households' not having the income to spend as a result.... we will soon be dizzy like those Turkish dervishes (just the mere thought of them makes me vaguely faint!).
It seems obvious that (capitalist) 'firms' will not invest because they are doubtful that the capital would yield a 'profit' - so it is 'safer' to sit on cash or treasuries. The 'crisis' is one of 'profitability'. It began as a 'financial' crisis because for long years asset-price speculation and inflation served 'to mask' the decline of profitability in advanced industrial capitalist economies from the capital 're-cycled' from mainly China in the Great Moderation. When the financial bubble burst we had States 'socialising' the losses made by Finanzkapital in its speculative lending to workers ('households') who were kept happy with 'fictitious' capital gains while nominal and real wages stagnated - so that cost-of-living inflation remained minimal.

But now that nation-States have inherited this 'private-now-public' debt, they are in a quandary as to how 'to liquidate' this debt - either through default or via inflation. In the meantime, the stagnant advanced economies and growing unemployment cause political tensions within countries and between them as capitalist elites decide who is going to bear 'the burden of adjustment', in terms of 'austerity' (domestically) and exchange-rate devaluation (inter-nationally). And that is where we are now.
(It is interesting, in this context, that the 'malign neglect' of the Fed is beginning to hurt Germany - 'the first of the class' - now that the dollar and exported inflation from US and UK quantitative easing are making eurozone economies, including Germany's, 'uncompetitive'. It will soon be the turn of European banks to succumb to their US rivals.)

Finally, social antagonism (we saw it in Greece, then Spain, now in England) prevent the nation-State from excessive 'austerity'. This 'democratic deficit' in reverse is bemoaned today by an Editorial in the Italian 'Corriere della Sera' (which is discussed at eforum21) which attributes the 'unsustainable public expenditure' by nation-States to the growing 'consumerism and spendthrift attitude' of Western publics that have abandoned 'older, more frugal' ways of living.... You would expect it in a country that hosts the Papacy, wouldn't you? (I thought it was worth a laugh!)

Wednesday, 17 August 2011

Ode to the French Revolution

This short translation I published at the Martin Wolf Exchange (many of my contributions are stored in the FT and I am re-posting them here by and by): it gives us a flavour of the times:


I open, by chance, Albert Mathiez’s La Revolution Francaise and parse breathlessly its formidable preamble:

“The true revolutions, those that do not limit themselves to changing the political form and the government personnel, but rather those that transform the institutions and occasion the great transfers of property, labour a long time subterranean before bursting to the light of day under the impulse of some fortuitous circumstance. The French Revolution, which caught unawares with its irresistible impetus not less its artificers and beneficiaries than those who became its victims, had a languid preparation for over a century. It sprang out of the discordance, each day more and more profound, between the reality of things and the laws, between the institutions and the customs, between the letter and the spirit”.

I am proud of this, my translation. Soon we will look at the relation between public debt and revolutions.

On the recurrence of Bastille Day (14 juillet, 1789), here is my toast to the French Revolution.

La Crisi Italiana - 'Corriere' Editorial

http://www.corriere.it/editoriali/11_agosto_17/galli_loggia_disavanzo_democrazie_ae878f10-c898-11e0-a392-b95dcb34082b.shtml

This post is dedicated to those valiant, courageous and beautiful young people in Spain who call themselves (with every right) "indignados" and who are demonstrating now against the hypocrisy and totalitarian fraud that is the Papacy. The rapid spread of "indignation" and tumults across Europe is now worrying the European bourgeoisie very seriously and causing it to reach into its reactionary recesses to find explanations, reasons, motivations for what is happening. But there is no need to go that far: we know perfectly well what is happening and we are showing it.

It is a pity for those who do not read Italian, because the Editorial in 'Il Corriere della Sera' that we have linked above is a perfect example of the "desperation" now beginning to show on the lurid bourgeois faces of bourgeois Europe.

The editors of 'Il Corriere' can see that the public debt of nation-states has to do with the antagonism of people like us. What they are beginning to say is that public deficits and debt are due largely to the excess of "greed" and "individualism" brought about by "modern society" and by the decline in "values" - morality, patriotism, love, friendship, community - that used to compensate for lower living standards in the past.

Very well! Beautiful! So remember my friends the "cri de coeur" of our benighted political leaders! To solve the economic and political problems of our rulers we need to convert to "moral values", to live with less (live like Chinese workers?) and to be more obedient (like the Japanese?) - THAT will solve the problems of underinvestment and speculation (but are these not the effects of "capitalist" actions or inactions? of the abuse and under-use of "our" resources?).

Once againn, I wish you could all read this editorial because it is a perfect Manifesto for Communism - OUR communism - which is not the infamous one of "the hammer and sickle". Our communism is that of "wealth", of full use of all of our resources, all of our human potential!

We defy, deny and renege THEIR "values": we are young and we want to live to the full - real life! - not "their" deathly "values"!










Roubini On Marx - Reprise

There has been a lot of interest about Roubini's comments tp the effect that "Karl Marx was right, capitalism can destroy itself" because, says Roubini, excessive inequality of income distribution will mean that produced goods cannot be sold for lack of purchasing power. It is not a sin, but Roubini does not know his Marx very well. Here on this site we will be discussing the real origins of the present crisis of capitalist economies in the "barrier" that production for profit poses to the utilisation of "privately-owned" social resources in the face of worker antagonism that tends to emancipate workers from the necessity to work.

Essentially, we argue that public debt and deficits are incurred because the reproduction of capitalist society requires an ever-greater intervention in the "private" economy by the collective capitalist, the State, because failure to provide basic services meets with intolerable social antagonism that is made more legitimate by the commensurate "deprivation" and "repression" experienced by wage workers and other sectors of society by the "under-utilisation" of those social resources.

By contrast, Roubini's reason for capitalism "destroying itself" can be easily dismisses simply by remembering that the entire point to "profits", which are the monetary essence of capitalism, is that workers consume as little of what is produced as possible! Underconsumption can never offer a valid explanation for the possible implosion of capitalist industry for the simple reason that if aggregate wages are not sufficient to absorb capitalist production, then the simple solution is.... for capitalists to raise wages! And if it be said that this is not done because of "competition" between capitalists, this is not valid even in the context of the "anarchical production" argument because t would be easy for the State, for instance, to legislate higher wages to boost consumption! Quite obviously, the problem is not "lack of demand" but rather "low profitability", which leads to "speculative bubbles" that require the State "to socialise" private losses as "public debt"! Cheers.

Brad DeLong and Austerity

I thought it would be instructive to publish this DeLong article in the FT together with my comments:



DeLong’s ‘explicit’ argument displays the astute mixture of (apparently) ‘economic analysis’ within a compelling ‘historicist/institutional’ framework. Simply put, DeLong sees a “decline of profitability” resulting in capitalists’ “unwillingness to invest” as...”an excess demand in finance” which leads to “an excess supply of labour”.
This is an extraordinary argument, one that Keynes would never have dared put in such blatantly ‘political’ language. DeLong is basically saying that the unwillingness of capitalists to invest due to their inability to realize ‘profits’ out of the investment “constrains” them “to park” capital in….”liquid instruments” such as cash or treasuries.
Now, this means that the “government” has a “captive market” of capitalists to whom it can sell treasuries to finance (directly or indirectly) the “public deficits” needed to reduce unemployment (DeLong’s “excess supply of labour”). (Your counter-argument that “you can’t fool investors for long” does not hold once “investors” have nowhere else to park their ‘wealth’, which is DeLong’s “excess demand in finance”.)
This is exactly your argument about “in the end we still have the same productive resources”, even with deflation/depression – but without the need to go through the “cathartic/expurgatory” experience of recession that the “Austrian School” prescribes. And the “Austrians” prescribe recession/deflation/depression for a precise reason, which DeLong does not address (don’t ask why). They prescribe it because they know that DeLong’s or Minsky’s economic policies pose a clear and present danger to the wage relation that lies at the core of capitalism – because these policies “emancipate” workers from “wage labour”.
And this is where the “institutional” bit comes in. Is it not a fact that the present “crisis” finally boils down to whether or not we want “work” imposed on us as an unshakeable “destiny” (“we can’t borrow from the future”, “we must make sacrifices”, “there are no free lunches” – the usual string of miserable platitudes a’ la Ferguson; or even the “negative-renunciation” rationale of the “Austrian” theory of “interest” [see my critique of it at ‘wolfexchange’])….or whether we seek a ‘different civilisation’, one based on “use values” instead of “exchange values”?
Voila’! C’est tout!





It is far too soon to end expansion

By Brad DeLong
Published: July 19 2010 22:21 | Last updated: July 19 2010 22:21
It was in 1829 that John Stuart Mill made the key intellectual leap in figuring out how to fight what he called “general gluts”: he saw that what had happened was an enormous excess demand for particular financial assets was driving an enormous excess supply of goods and services – and if you relieved the excess demand in finance you would cure the excess supply of labour. When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy.
The austerity debate
Read all the articles in the series and leave your comments
But what happens should a government print more bonds than investors think it will dare to raise future taxes to pay off? What happens when a government’s debts are no longer regarded as safe? Then policies of monetary or fiscal expansion or of banking sector asset swaps and guarantees do not boost but reduce the supply of safe assets: they move government paper into the “risky” category. We saw this in Austria in 1931 and east Asia in 1997-98 and Greece right now. Then not expansion but rather austerity, to restore confidence in the safety of government liabilities, is the best a government can do – that and cry for help from outside.
Here we have the crux: Greece, Ireland, Spain, Portugal and Italy need to be austere. But Germany, Britain, America and Japan do not. With their debts valued by the market at heights I had never thought to see in my lifetime, the best thing they can do to relieve the global depression is to engage in co-ordinated global expansion. Expansionary fiscal, monetary and banking policy, are all called for on a titanic scale. But, the members of the pain caucus say, how will we know when we have reached the limits of expansion? How will we know when we need to stop because the next hundred billion tranche of debt will permanently and irreversibly crack market confidence in dollar or sterling or Deutschmark or yen assets? Will this shrink rather than increase the supply of high-quality financial assets the world market today so wants, and send us spiralling down? Economists had asserted before 1829 that what we call “depressions” were impossible because excess supply of one commodity could be matched by excess demand for another: that if there were unemployed cobblers then there were desperate consumers looking for more seamstresses, and thus that the economy’s problems were never of a shortage of demand but of structural adjustment. But once Mill had pointed out that these economists had forgotten about the financial sector, the way forward was clear – if you could cure the excess demand in the financial sector. Monetarist dogma says the key excess demand in that sector is always for money – and so you can always cure depression by bringing the money supply up. The doctrine of the British economist Sir John Hicks says the key financial excess demand is for bonds, and you can cure the depression by either getting the government to borrow and spend or by raising business confidence so the private sector issues more bonds.
Followers of the US economist Hyman Minsky say the monetarists and the Hicksians (usually called Keynesians, much to the distress of many who actually knew Keynes) are sometimes right but definitely wrong when the chips are as down as they are now. Then the key financial excess demand is for high-quality assets: safe financial places in which you can park your wealth and still be confident it will be there when you return. After a panic, Minsky argued, boosting the money stock would fail. Cash is a high-quality asset, true, but even big proportional boosts to the economy’s cash supply are small potatoes in the total stock of assets and would not do much to satisfy the key financial excess demand. Trying to boost investment would not work either, for there was no excess demand for the risky claims to future wealth that are private bonds. The right cure, his followers argued, was the government as “lender of last resort”: increase the supply of safe assets that the private sector can hold by every means possible: printing cash, creating reserve deposits, printing up high-quality government bonds and then swapping them out into the private market in return for risky assets.
We don’t need one of expansionary monetary and fiscal and banking policy, we need all of them – until further government action begins to crack the status of the US Treasury bond as a safe asset, and further government bond issues reduce the supply of safe high-quality assets in the world economy. Has that day come? No. The US dollar is the world’s reserve currency, the US Treasury bond is the world’s reserve asset. The US has exorbitant privileges that give it freedom of action that others such as Argentina and Greece do not have. Will that day come soon? Probably not.
But trust me, we will know when the time comes to stop expansion. Financial markets will tell us. And not by whispering in a still, small voice.
The writer is professor of economics at the University of California, Berkeley

Capital Controls, Flows and Inter-Capitalist Rivalries - the Case of the Euro

Capital flows in and of themselves DO NOT cause ‘crises’, but they are symptoms of deeper social antagonisms over the distribution and production of social wealth. It is essential to understand that the Global Financial Crisis was occasioned by the speculative efforts of finance capital to appropriate social wealth upon the ‘reflux’ of capital from its enormous accumulation in Asia under the virulent exploitation of workers subjected to dictatorial regimes, either extant as in China or of the recent past as in Japan, South Korea and Taiwan. The Chinese (Communist!) dictatorship deserves especial infamy for the way in which it has permitted the unprecedented exploitation of its workers at its own hands (state-owned enterprises) and foreign corporations whilst taking good care ‘to re-plough’ its accumulated foreign reserves into the ‘safety’ of US Treasuries (!) rather than expanding domestic consumption and social welfare to emancipate its own people!!

As Ben Bernanke established in his academic research (presented in Congressional hearings), this enormous accumulation of capital (or, as he labels it, “excessive savings”) together with the ‘laxity’ of Western governments in avoiding their ‘speculative investment’ gave rise to ‘speculative bubbles’ in Western capitalist economies whose ‘bursting’ has resulted in an almost unprecedented transfer of wealth to finance capital in the form of public debt taken over by ‘nation-states’ to rescue and protect the very finance capitalist institutions that caused the ‘crisis’ in the first place!!

As I have sought to explain below, ‘capital flows’ are really attempts by capital in its ‘liquid’ or ‘financial’ form TO ESCAPE the antagonism of the wage relation and to acquire ‘value’ speculatively (in the words of George Soros, by “creating imaginary value out of thin air”!). This ‘capital flight’ is not so easy or even possible for ‘industrial’ and ‘long-term financial’ capitalists who often have to suffer the ravages and the loss of wealth caused by ‘speculative bubbles’ with the rest of society.

The ‘crisis’ in Europe has different origins. In the EU the capital flows from the Franco-German ‘core’ to the ‘Mediterranean periphery’ was a result of the greater productivity (‘competitiveness’) of German industry which, in turn, was a historical legacy of the ‘social pact’ between a German working class that was thoroughly vanquished in the Nazi period and the German bourgeoisie.

This initial advantage was then cemented in the artificial undervaluation of the Deutschemark disguised by the Bundesbank as a steadfast technocratic “defence” (Verteidigung) of the DM against ‘wage explosions’ and ‘imported inflation’ and justified pathetically as a legitimate attempt to avoid a repeat of the Weimar ‘hyperinflation’ (see Karl Otto Pohl’s book on “The Defence of the DM”).

The reason why the German bourgeoisie agreed to European Monetary Union was precisely to cement the ‘chronic undervaluation’ of the DM and its export surpluses as well as to prevent ‘imported inflation’ from the Mediterranean ‘periphery’ with their periodic “competitive devaluations” under the post-Bretton Woods flexible exchange-rate regime. (This much is conceded by Padoa-Schioppa in his ‘diplomatic’ defence of the eurozone in today’s FT.)

As you may appreciate, we now have TWO LEVELS of social and international conflict over WHO BEARS the ‘burden of adjustment’ of the crisis. The first level is at the ‘national’ level where an increasingly cohesive EU government and the US government seek to negotiate and mediate the payment of debt obligations to ‘lenders’ (finance capital) by ‘borrowers’ (workers). Whereas financial capitalist elites are calling for “fiscal responsibility”, that is the timely repayment of their ‘private debt’ by governments through higher taxes and ‘austerity’, the task will be made difficult by the antagonism of workers (who will seek to maintain the ‘nominal’ value of wages and of employment) and of industrial capital keen to maintain effective demand through monetary expansion and perhaps ‘inflation’.

The most c r u c i a l   role in the resolution of this ‘conflict’ will be played by the European Central Bank that is ALREADY under enormous social pressure (from workers and industrial capital) to act as ‘lender of last resort’ and MONETISE the sovereign debts of member states whilst, on the opposite side, conservative forces and finance capital pressure it to maintain its (technocratic, ‘non-political’, independent’!) ‘credibility’ by keeping inflation targetting as its one and only raison d’etre. (This conflict is being played out DAILY in the pages of the FT itself. See stories on Trichet and Axel Weber.)

At the SECOND level, we are witnessing rising conflicts between ‘dominant’ nation-states from the US to Germany (representing the EU – note that President Obama called Kanzler Merkel last weekend at the height of the European crisis, and not the EU President) and also involving China’s dictatorship with its maligned ‘peg’ of the yuan to the US dollar which simply aggravates the adjustment burden for US employment given the steady ‘devaluation’ of the euro! For its part, the EU welcomes the falling euro but fears the onset of ‘inflationary wage expectations’ among its workers that would undermine social stability.

These ‘hegemonic’ conflicts have been widely reviewed and we will not enter them here. SUFFICE IT TO SAY, in conclusion, that the German bourgeoisie HAS NO CHOICE but to defend the EMU and to accelerate the strengthening of a “European economic government” (which includes a more active role of the ECB in inflation management with the possible election of the Italian Mario Draghi rather than Axel Weber to its presidency) PRECISELY BECAUSE the ‘eurozone’ is the real source of its ‘dominant’ or hegemonic status in Europe. Were the eurozone to break up, this would undermine the scale and weight of German (and European) capitalist industry on the global stage and in the world market!! (This is the conclusion of a recent report commissioned by the EU fretting the reduction of Europe to “a mere appendage of Asia” and the recurrent theme of the highest EU authorities –  also reported in the FT.)

Apologies for the lengthy post, but I feel certain that participants will appreciate the overriding importance of ‘shedding light’ (Sichtbar Machen) on what can be complex and confusing events.

Whilst it is tempting to confine debates of this type to ‘technical issues’, I believe it is a moral and civic as well as an intellectual duty for us to ensure that these matters do not become the province of “scientific experts” who, as Jurgen Habermas always reminded us, then become “the inmates of closed institutions” (in ‘Theorie und Praxis’). Regards.