Commentary on Political Economy

Monday 5 September 2011

The Society of Capital - Debt, Profits and Wages

The "spectacles" that capitalist elites wear are a metonymy for the prejudices of its economic theory - espoused and propounded by paid agents who warm the Chairs of college professorships the world over. The highest task and the most shared belief these pundits preach is that the capitalist economy is a "mechanism" that functions in a manner that is "scientifically determined" and whose "dysfunctions" could be righted easily if only... if only "politics" did not get in the way! This helps explain why bourgeois economists are forever looking for "equilibrium conditions" in which savings equal investments, the marginal product of "labor" equals that of "capital" (machinery) and the "money rate of interest" equals "the natural rate of interest" or, at the least, this rate is an NAIRU (non-accelerating inflation rate of unemployment), that is, it contracts the utilisation of social resources to a level of unemployment where wage demands are in line with productivity increases and the price level is "stable". (This is the kind of Wicksellian dross that Michael Woodford espouses for the "New Neoclassical Economics".)

Yet it becomes every day more evident that there is no "technical" solution to the current crisis because capitalist firms are unwilling to invest although they are awash in "investible funds" - many are even "returning capital to shareholders" in share buy-backs that serve only to enrich theor managements. The reason for this is that the expected "profitability" of investment is too low to warrant investment - because inflation threatens to take off at the faintest sign of economic growth, as Germany and the ECB's recent actions attest, and as the parabolic rise of inflation in "emerging economies" clearly shows.

In such circumstances, the only way in which employment and capacity utilisation can rise in the developed economies is if the nation-states, the Crisis-States, take over directly the burden of investment through fiscal expansion - which means creating more public debt - which means that we are back to where we started. The hope of the "post-Keynesians" or the "progressives" in all this is that more government expenditure will expand employment and therefore aggregate demand sufficiently for private investment to resume, government revenues to rise and for the debt to be paid. Alternatively, the related inflationary pressures will reduce the "real cost" of the public debt and lower its repayment in real terms.

At this stage, we have to hasten to point out that "real cost" does not mean "nominal prices adjusted for inflation", because "prices" do not indicate anything "real" in the capitalist economy (certainly not use values) except the "regulated distribution" of total monetary profits across the economy that is "co-ordinated" by the vast bureaucracy of the Crisis-State. In other words, there is nothing "automatic" or self-regulating about capitalist industry: it is the result of the myriad "policies" that State bureaucracies have in place that "mediate" the needs of the given "sectors" of industry. Ultimately, apart from the huge role paid by the Crisis-State itself in employing and paying state employees, the remainder of the capitalist economy is co-ordinated through the control of monetary and credit policies from central banks which concentrate almost exclusively on "consumer prices" rather than on "asset prices" given the "Jackson Hole consensus" that central banks cannot "lean against the wind" or
"prick bubbles".

That is why we can speak of a "Labor Standard" - because the "co-ordination" of the capitalist system is no longer left to individual firms fixing wages with their workers but depends rather on the overall "regulation" of the system through the preponderant role of the Crisis-State that amounts to a centralised "planned" economy with a large "private sector" run by capitalists who then control the rest of society, first, through certain "strategic sectors" such as the media and education (of the elites) and defense and health technologies, automobile and gasoline (energy), steel, plastics and other areas. And secondly by ensuring that the elites that run political and judicial institutions are drawn from their ranks with appropriate "compensation" and "osmosis" through the exchange of directive functions (eg central bankers go to academia, academics to central banks, then they all end up employed by financial institutions - see the case of the US Treasury or the Japanese nuclear industry whose "regulators" end up being employed by that same industry).

So, what the Labor Standard does is it allows the Crisis-State "room to manoeuvre" in its "fine-tuning" of the capitalist economy, mediating more or less "democratically" its antagonistic interests - those of capital on one side, and those of living labour on the other. We will look at this next time.

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