Commentary on Political Economy

Tuesday 6 September 2011

Comment On Martin Wolf Column

For at least one year we had been arguing that "this time IS different" because the "globality" of the financial crisis, then become a recession, would force capitalist investors to park their unused funds in US treasuries - which is very much what has happened. Martin Wolf now suggests that therefore Western capitalist governments should use the opportunity provided by cheap funding of public debt to expand their economies as Britain did in 1815 - just before what Wolf calls "the Industrial Revolution" - and here he is wrong, because it was "the Second Industrial Revolution" (the first one began late in the seventeenth century and progressed through to the nineteenth).

But he is also wrong because, this is something we are trying to show on this site repeatedly, governments will not spend the funds made available by private investors for fear of inflation, first, but above all because the investment will not be "profitable" for private capital and, in the circumstances, will result in the "crowding out" of private investment. In other words, at a certain level of wage antagonism, greater employment will not benefit private capitalists because the higher demand from government expenditure will be the equivalent for "private capital", and therefore for "capital" overall, to a straight "transfer payment".

We will revisit this point later in connection with the work of Hyman Minsky. Here is Wolf's article:

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