some notes about money

1. I want to start with the conventional theory of money. Actually, the use of words like "orthodox" and "conventional" in relation to economic theory is misleading, as Maurice Dobb demonstrates in his classic Theories of Value, the orthodox economic theory at any point in time is whatever is politically efficacious, hence the history of the orthodox theory is a zig-zag between bad ideas that are politically expedient at a particular moment, to shore up an unpopular existing policy; and this is right up to the present day. Anyway, the conventional theory of money has "narrow money": cash in circulation plus central bank liabilities, serving as a basis for "broad money": bank credits. The supply of "narrow money" is thought to be fixed at any particular time, as is the commercial banks' reserve ratio (by custom or law). Consequently "broad money" ought to be fixed. According to this way of looking at the problem of money, money would be "exogenous", a fixed amount, depending on variables amenable to control by the authorities (cash in circulation, central bank deposits, reserve ratio).

2. exogenous money is logically presupposed by the "Cambridge equation", which is meant to establish the relationship between prices and the money supply, and hence inflation and the money supply:

Mv = Y

or, the amount of money multiplied by its velocity of circulation equals income, for any particular period. Since "v" is immeasurable unless we know the other variables, the usefulness of this expression might be thought rather limited. The Cambridge equation is true in as much as it's a tautology, but it certainly isn't proof of the independence of M from Y.

3. Nevertheless, social systems that used a genuine commodity money, such as gold or silver pieces, and had no credit money, have certainly existed. The sort of "monetarist" argument put forward by Ricardo, for instance, sees paper money representing a more or less good claim to the commodity that serves as real money, e.g. gold. The argument that the value of paper money isn't increased by the multiplication of paper in excess of the gold it represents is essentially the same as the argument that the value of gold coins isn't increased by clipping the coins and adding the clipped gold to the clipped coins. Anyway, Geoffrey Ingham's book The Nature of Money clearly establishes that the development of credit money is coextensive with the development of paper money, so the whole school of monetarism is based on a misconception, insofar as it only understands paper-commodity-money, or exogenous paper money. The real thing is capitalist credit money.

4. Marx says somewhere that any attempt to analyse money invariably falls back on the idea that money might as well be thought of as gold. Suppose we tried to analyse inflation in a simple economy where all income is consumed, workers are paid a conventional minimum real wage and paper money is used. If the monetary authority takes it upon itself to print a certain amount of money to finance, say, pyramid building, the final result, after all adjustments have been made will be the same the same commodities in the same proportions being received by workers and capitalists, but higher prices. If the workers are able to continue to claim their minimum wage throughout the period of rising prices, they will suffer no ill effect from it. The cost of the labour appropriated by the monetary authority will fall wholly on the capitalists, who will have to increase their monetary capital, instead of distibuting profits, in order to pay increased money wages.

5. Hence we can see that inflation might appear as a social cost for the capitalist class as a whole, though the effects of inflation would really affect different capitalists or capitalist blocs differently, and some might actually benefit.

6. So, we can situate, as it were, Nicholas Kaldor's concept of endogenous credit money (which does represent a genuine theoretical advance), in the factional squabbles between sections of the western ruling class. The followers of Friedman wanted to end hyperinflation. Kaldor was involved in a sort of rearguard defence of social democracy.

This isn't the whole story though, and if I return to this theme, I might say something completely different about inflation and its causes and consequences.

more about money

I had pulled out my gold teeth...

is this another contrived dialogue about money?

I had pulled out my gold teeth, and placed them, along with my wedding ring, in the bag provided by Cash4Gold, the internet gold purchasers, because the frightening analyses on this page had convinced me that the economy was in real peril. But on checking your analysis of Keynes, I've noticed some discrepencies, and this leads me to doubt the whole thing. According to what you wrote earlier, Keynes sees "savings" and "investments" as disarticulated processes, leading to inflationary or deflationary pressure when they fail to balance. In fact, in Keynes' chapter seven, Keynes insists that they are equal, or at least that the theory that they are always equal is "sounder" then the theory that they aren't. Doesn't this invalidate what you wrote before?

If you look at the summary of Keynes' book (chapter eighteen), the model described is pretty much the same as I put forward. It's such an intuitively appealing model, with the disarticulated monetary flows, and their tendency to self correct, I still feel like it's central to Keynes' approach. It's a perfectly reasonable model of an economy without reserve banking, or at least in this case it would only commit the errors of any economic model. Maybe Keynes set up his model this way and then wrote chapter four after being criticised for not developing a theory that's able to deal with reserve banking. In other places Keynes seems to think his theory is transhistorical. In that case, his insistance that "savings" equals "investments" would be absurd, because it would not apply to a money economy without reserve banking. The very terms "savings" and "investments" are suggestive of such an economy. If he wanted to talk about modern fractional reserve banking, surely "savings and investments", necessarily equal, should be shown as "debt contracted" a double entry added to a bank's assets and liabilities, the schedule that may or may not meet it could then be "debt serviced", a double entry in the opposite direction.

Are you saying now that Keynes' theory is a theory of commerce in the ancient world, with a few contemporary bourgeois trappings pasted on? Because before, I seem to remember you said the supposedly historical part of Keynes' book described bourgeois England but dressed it up in period costume.

I think the methods I've used were entirely suitable to the things I was looking at before, the ideological apparatus of capitalist society, basically, and these issues around authority etc. Money evidently requires a different approach. I haven't read the secondary literature on Keynes, but anyone who wants an authoritative view could look at Skidelsky's or Harrod's biographies, or the reinterpretations of Keynes by Minsky, Harcourt, Tarshis and Leijonhufvud.

The reinterpretation I read on this site seemed more along the lines of Milton Friedman.

maybe, but this follows logically from the assumption of indestructible money, gold or whatever, which follows logically from the pure model with "savings" and "investments" and the downard sloping schedule of the marginal efficiency of capital. I don't think this theory is right anyway, but the orthodox theory of money doesn't seem to have got much further than where Keynes was in the thirties.

the mysteries of money

I feel like, last month's entry was just a garbled dialogue about money. Was there any point to it?

yes, the point is, the Conservative party are probably coming back in the next year, and, even though I'm not exactly in love with New Labour, the present time offers an opportunity to give a verdict on the effects of previous Tory economic policy. I mean the effects in a technical sense. Everyone remembers the rotten social consequences of their policies: thousands made homeless, the destruction of UK manufacturing, virtually a state of depression in the North for years, McDonalds jobs, fucking Sky. But, the whole thing was, that they were meant to be benefitting the economy as a whole, admittedly at the expense of the greater part of the population. This is the ideological line that they were happy to defend, and which has carried over into popular culture. They were "tuff choices", to sack binmen and rehire them on two thirds salary, or to sell off the utilities at a discount , and in effect hand the banks a sack full of public money. But these "tuff choices" were meant to have benefitted total output and total income. I think we could prove that these choices actually harmed the economy, and that this was done quite deliberately.

Doesn't Naomi Klein prove this in "the Shock Doctrine"?

Maybe. Maybe David Harvey does, or even Francis Wheen.

But this isn't "official" enough, in some way?

The whole question of what's authoritative and what's heterodox is played out in a peculiar way in a culture dominated by neoliberalism, in which operative political science hides, as it were, behind the constructs of an ersatz popular culture. I think it was right to see neoliberalism as having three aspects: practical policy, theory, popular appearance. It's fairly easy to get value out of attacking the "popular" aspect of the "trinity": to demonstrate the absurd consequences of the popular forms. This can even be extended to attack the theory itself in some places, and attack it effectively, as in Linder's Anti-Samuelson, but this doesn't effectively refute it.

the popular aspect?

Like, Glenn Beck appears in the Observer, here with this

"I am the most enthusiastic capitalist since Adam Smith," he said on one recent show, "If I could sell sponsorship on this chin right here, I would. It would say: 'third chin sponsored by Goodyear'

Glenn Beck does not know what a capitalist is. What he actually wants to be, according to his speech, is not so much a capitalist as a commodity, or more realistically he wants to feel that his existance as a commodity is vindicated by a theory he has never read. Also, he seems to think that capitalists make money by accepting sponsorship from eachother. Even Adam Smith himself, assuming he could make time away from supervising his factory hands, would struggle to explain how such an arrangement could possibly generate profit systemically.

So, the thing would be to look at the theory and practice of modern capitalism in a more direct way, without such comic asides?

yes, probably. And this is why it's crucial to get to the bottom of the mysteries of money.

recession notebook 1.

The UK has two measures for inflation, the CPI and the RPI, which have diverged as the economy has become more and more tied up with housing speculation. The Retail Price Index has a stronger asset price bias, and serves as a better index for calculating wealth. The Consumer Price Index is less exposed to asset price fluctuations and serves as a better index for measuring production.

Between the second quarter of 2008 and the second quarter of 2009, UK output fell 4.5% in nominal terms, and 6.5% with output adjusted to CPI prices. At the same time the workforce has been reduced by 2%, as 650,000 people have lost their jobs.

So, while workers who managed to keep their jobs are somewhat worse off, as price inflation has exceeded wage increases, workers' "share" of overall production relative to capitalists' "share" of production has actually increased. I mentioned last year that this would probably happen, and that big capital would logically seek to reverse this movement through inflation. The government has certainly instituted classic inflationary policies: tax cuts, targeted corporate aid, reduced interests rates, even printing money, but this hasn't chased through as yet to increased prices.

In arguing that labour's share of production would hold, I mentioned Marx's theory of rigid real wages alongside Keynes' theory of rigid money wages. I was wrong to insist on real wage rigidity, for the simple reason that reduced productivity in a recession, in the absence of money wage increases, will inevitably reduce real wages in the short term. In the medium term, cutting into "conventional minimum" real wages will damage productivity, so these ought to be as "defensible" as Keynes' money wages. The conventional minimum real wage is also partly determined by social and psychological factors, so workers might accept a lower real wage temporarily in a recession, without this reduction sabotaging productivity.

The situation I described above, with labour taking a greater share of reduced production, goes against another of Keynes' hypotheses: that the schedule of the marginal efficacy of capital is likely to be downward sloping. In effect, British capitalism has not been driven back "uphill" surrendering unprofitable sectors, and defending a more profitable hinterland. On the contrary, British capitalism has lost productivity overall. It has retreated downhill, becoming less profitable as it has shrunk. Like Kafka's giant mole, it scuttles back into its burrow.

Predictably enough, some banking interests have actually become more profitable as a result of these upheavals.

These are the government's statistics:

nominal GDP

workforce

CPI index

Mattick's opinion

"SOMEHOW, AND FOR REASONS known only to himself, Paul A. Samuelson cannot leave Marx alone. His latest concern in this respect is an attempt to have the last word in a long-drawn controversy regarding the relation between value and price in the Marxian system."

Paul Mattick's opinion on the "transformation problem". To be honest, this made me screw up my face more than Samuelson's parade of greek letters.

the transformation problem 2

This is an illustration of some accounts figures for a single capitalist firm or aggregate of firms, with the red lines illustrating the ratios between these figures

a - accounting rule: assets equals liabilities

b - rate of profit on capital

c - capitalisation rate

d - mark up, or rate of surplus

e - rate of exploitation

f - organic composition of costs (Marx's "organic composition of capital" relates wages to total assets)

Samuelson's argument involves an example in which firms' capitalisation is equal to their total costs over the period in question. This is the same assumption that Marx makes in his example of production price calculation in Capital part three. In reality, capitalisation rates are likely to vary between industries depending on the turnover of stock, depreciation of assets and funding for new assets, cash to pay wages etc, credit extended and received, "good will".

Samuelson proves that for the "hard" version of the labour theory of value to hold, given a positive rate of interest, the rate of exploitation would have to be the same for all firms. It could be argued that different sorts of work cannot possibly produce the same rate of exploitation. For example, if someone packing boxes could be made to generate 10% more profit for the same remuneration, how could the same transformation apply to different sorts of work, like driving a van, sewing shirts, repairing car engines? Or, if we can be sure that some firms have some monopoly power, won't this show up in higher rates of exploitation?

Samuelson's example suggests another reason, that because a, b and c are fixed ratios, d (mark up) must be a fixed ratio. If e (rate of exploitation) is also a fixed ratio then f (organic composition of costs) must also be a fixed ratio. This is a different thing from Marx's "organic composition of capital", which represents the ratio between labour costs and total capital.

Because of this "tradition" of drawing up examples where capital is taken to be equal to costs, certain commentators, like the Soviet Union analyst Alec Nove, sometimes discuss Marx's "organic composition of capital" as if this meant the same thing as "organic composition of costs". This is not the case if rates of capitalisation vary.

Marx's concepts of constant and variable capital aren't really tenable, because a firm's fund out of which labour costs are paid, and which represents the capitalisation of these costs, isn't necessarily distinct from the firm's other cash funds. The same bank account will generally be used for non labour costs and taxation. Hence, variable capital, taken as the average amount of the labour fund isn't really measurable. Also, labour isn't an "asset" in capitalism, it's merely funded out of a firm's stock of cash, which is.

A further disparity occurs in public companies, where the profit rate ought to relate to the market value of the stock, whereas the organic composition of capital will relate to the company's assets, which could be much less. Although arguably, the market value of companies' stock should only exceed the value of their assets in conditions of complete or partial monopoly.

the marxist transformation problem

I sort of assumed that Marx's labour theory value just meant that all costs could be decomposed into wages and profits, the sum of which is called "labour". But it seems reasonable to think that for each product produced, the decomposition of wages and profits will have the same ratio, i.e. the price of any product produced under perfect competition will be in proportion to the labour expended on it. Paul Samuelson's refutation of the theory of labour proportional prices* is a consistant centre of ideas around the "marxist transformation problem". Below, I try to give an example of how Samuelson's algebraic proof might be played out, using made up numbers. The value of capital is equivalent to funding for the costs incurred, which are all paid at the same time, and the rate of profit is 25%.

Suppose an economy consists of three sectors, of which the first supplies producers' goods to the other two:

First Sector

Capital £160

Revenue £200
Wages £160
Costs
Profit £40

All these goods are sold to capitalists in the consumer goods industries, sectors two and three.

Second Sector

Capital £200

Revenue £250
Wages £50
Costs £150
Profit £50


Third Sector

Capital £200

Revenue £250
Wages £150
Costs £50
Profit £50

The costs paid by sectors two and three represent the income of sector one. This income can be broken down into wages and profit at the rate of 4 : 1. Hence sector two's costs represent £30 of profit and £120 of wages for sector one, and sector three's costs represent £10 of profit and £40 of wages for sector one. Of the total wages cost expended across all three sectors in producing consumer goods, £170 was input into the products of sector two, and £190 into the products of sector three. Since labour is homogenous, the ratio of the wage costs of any two sectors of the economy is the same as the ratio of labour input.

The ratio of the value of the output of second sector to the value of the output of third sector...

...by the price of total output is 250 : 250

...by labour inputs is 170 : 190

This shows that the Ricardian labour theory of value, where commodities' "relative values will be governed by the relative quantities of labour bestowed on their production" is not realistic. The exceptions to this rule, where the theory does hold, are where the interest rate is zero or where all sectors of the economy have the same ratio between direct wages and profit.

Essentially, what skews the values of any output from a value proportionate to the labour input, is that the mere use of the capitalists' assets, themselves products of labour, is exchangeable for other products of labour. That is, the conditions of capitalist production prevent the exchange of commodities at values proportionate to their labour inputs.

*see the Wikipedia page on the transformation problem for Samuelson's argument

keynesianism 3

The investment and saving schedules theorised by Keynes are meant to represent inflows and outflows of money to or from the real economy over a period of time. Keynes' conception of economic self-correction means the sums of money and their peridisation are not important. An imbalance, according to Keynes, will expand or contract the economy until parity is reached. If government sought to reduce interest rates and expand production permanently via public spending, it would be necessary for this spending to be constituted as a periodised flow also. Funding of this flow of spending would have to come from the ex nihil creation of money. Public works are not a necessary form of this government spending, which could just as well take the form of gratuities handed over to the richest members of the community. Keynes' considers it prudent to fund workers through public works, rather than capitalists, as they are likely to spend rather than save more of their income, and in order to avoid labour unrest. Zimbabwe owes its fabled misery to the adoption of such an expansionary monetary policy.

There remains the idea of adopting a temporary policy of public works financed from outside the supply of circulating money. Such a policy might serve to bridge a temporary slump within the business cycle, maintain output above what it otherwise would be, and by consequence save productive plant that would otherwise be destroyed. Such a policy might reasonably be funded through intertemporal taxation or private sector loans. Whether such a policy would work depends on the validity of the postulates underlying the neoclassical theory: e.g. the idea of perfect competition. Nitzan and Bichler show how firms with market power raised their prices, in relative terms, during the deflationary crisis of the Great Depression.

Keynes has caused a great deal of confusion with his ideas about investment and the investment multiplier. Keynes argues, following Richard Kahn, that a increase in investment at any level of interest will be met by a much larger expansion of production. The money taken from the non-circulating fund is supposed to cause an expansion of production, up to the point where money outflows once again equal money inflows. Ex nihil goverment spending would do the same thing, up to the point where it had to be funded from the real economy, or inflation broke down the condition of money wage rigidity. Government spending is not, however, the same thing as investment in productive plant. Keynes' theory does not seek to ascertain how much money will be spent on investment in productive plant, merely how much money from non-circulating funds will be used this way. It does show how an increase in government spending, through its influence on interest rates, could choke off investment from this second source of funds.

keynesianism 2

One might have expected that Keynes' General Theory, insofar as it examines how various shocks would impact on an economy in which the money supply does not expand and new plant can be bought but not put into use, could hardly serve as the basis for political initiatives. Nothing could be further from the truth. In order for something like Keynes' theory to serve as a guide to policymaking it is necessary for Keynes' short term model to be extended to a medium term model, in which more variables are subject to change. Keynes offers no clue as to how, for instance, the medium term rate of profit on marginal capital might show the same tendency to decline as the short term rate of profit. He certainly does offers policy makers encouragement to use his theory in precisely this way.

Keynes believes that output and employment can be increased if capitalists are prepared to produce at a lower rate of interest. The increased employment of available resources, including labour, ought can be thought of as a general improvement. Keynes thinks this reduction in the operative rate of interest can be effected in two ways:

1. Increasing the propensity to invest at every rate of interest - shifting schedule "N" down and to the right

2. Increasing the propensity to consume at every level of income - shifting schedule "S" down and to the left

These are surely long term or medium term goals for an administration, and incorporating these changes into Keynes' short term model is, at best, stretching a point. Keynes' model implicitly rules out the use of new industrial plant, and the effect of this increase in capacity on output and interest, as beyond its scope. This feature of capitalist production is excised for formal reasons, even though policy proposals are made, the efficacy of which certainly depend on the growth path of capitalist production.

The ideas mentioned above about psychological propensities to save or invest are the basis for Keynes' reverie about ancient Egypt, which:

"was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance".

This is probably only half serious, because ancient Egypt evidently was not a fancy dress version of bourgeois England. Keynes' point is that the relatively low amount of saving in ancient Egypt, i.e. hoarding of gold, would have reduced "the interest rate", whatever that was, and increased output. This counterfactual story is not just picturesque, however, because it serves as a rhetorical support for the most celebrated keynesian policy: wholly wasteful loan expenditure.

keynesianism 1

The specific situation analysed by Keynes, in which a market economy fails to achieve full employent, is based on the the validity of Keynes observations about the rigidity of money wages. An economy with a fixed supply of currency, perhaps based on a more or less fixed supply of gold, would certainly be exposed to deflationary forces if individuals decided to withdraw more and more currency from circulation. If money wages are fixed, monetary deflation will probably be reconfiguered as a contraction of the real economy. The simplest solution to this problem, put into practice by governments everywhere since the abandonment of the gold standard, is for government to progressively inflate the money supply, and so prevent workers from making real wage gains by defending a current money wage. Even Milton Friedman considered this the most realistic response to a deflationary crisis as severe as that of the great depression. Keynes claims to have developed a general theory of the capitalist economy, supplementing the restricted theory of the classical economists (for Keynes, principally Smith, Ricardo and Marshall), which tacitly assumed that the interest rate would be equal to Keynes' "neutal rate" of interest, or a rate of interest maintaining employment "at some specified constant level". In the context of the abandonment of the gold standard, the notion that the economy is subject to deflationary pressure on account of its restricted supply of money is no longer so credible. Keynes' theory itself can be taken as a description of the special case of an economy in which the government does not permit itself to expand the money supply.

The great difficulty with Keynes, and part of the reason why his books are still read, is that while he talking about one thing, he might be alluding to something else. So people think, perhaps he could have meant that real wages were fundamentally stable, or that the interest rate on productive capital might fall for a different reason, or that the medium term processes of the economy might behave like the short term processes, etc etc.

the Keynes meme

Interest in Keynes' ideas has understandably increased since the last year's great banking bailout and recession. At least, the opinion pieces in the Guardian seem to mainly involve Keynesianism and the "liberal left". Because Keynes' system is fairly complicated, I thought it would be worth restating what it entails, as far as I understand it. This could then be a sort of resource for amateur criticism of the theoretical basis of the Keynesian proposals put forward by playwrights, journalists and celebrity cooks, in the pages of the Guardian.



"N" (investments) represents the value of capital investments to be made from the reserve fund of non-circulating money

"S" (savings) represents the value of money diverted from consumption into the reserve fund of non-circulating money

"MEC" marginal efficiency of capital, i.e. rate of profit on additional capital.

Money wages are fixed in the short run. It is hypothesised that workers will be able to effectively resist cuts in money wages. Because there is involuntary unemployment, it is further hypothesised that an increase in the workforce will not cause money wages to rise. In the terminology of economics, the labour supply is perfectly elastic, within the relevant range, at the prevailing money wage.

"MEC" represents the marginal efficiency of capital. It describes the expected return on capital added to existing capital. The Keynesian "problem" occurs when the graph of MEC is downward sloping. That is, each £100 added to the stock of capital is expected to return a lower percentage of its value each year as profit. Keynes explains this phenomenon as resulting from technical diseconomies of scale. Each additional worker set to work produces output of less value than the last.

Competition between capitalists is assumed to coerce them into setting production where their costs, including normal profits, coincide with their income. Put another way, capitalists increase or decrease production until the industry supply curve, representing their costs, including normal profits, coincides with the industry demand curve, representing their income.

The short run supply curve, representing industry costs, can be taken to be fairly similar to the supply curve for labour, because industry as a whole need only put to work extra labour to increase production. The industry supply curve will have a tendency to rise, however, as production increases, because labour is considered to work with decreasing efficiency. Industry will respond to an increase in demand by expanding production, with a less marked increase in prices. Similarly, industry will respond to a decrease in demand by reducing output, with a less marked decrease in prices.

The economy will only be stable if the sum of money output to the consumers, in the form of wages and profits, exactly equals the money input into industry, in the form of consumption spending and investment. This is the basis of the problem of oversaving. If money is saved from the incomes generated by industry , with no commensurate injection of money from elsewhere, then demand in the goods market will have effectively fallen. Capitalists cannot simply devalue their products, as they cannot devalue their costs, and will be forced into the expedient of reducing production.

"Saving", for Keynes, means the same thing as "hoarding", for Marx. That is, it is either the saving of banknotes, in a shoebox or whatever, or the banks' reserve on bank saving: the percentage of deposits the banks can't relend. Keynes' saving schedule represents net savings: while some people may be saving others may be dissaving. Money is considered to be saved for the usefulness of possessing a liquid asset, entitling the holder to unspecified future production. Keynes assumes that saving increases as national income increases, but that the percentage of income saved also increases as national income increases. At low levels of national income, Keynes expects net dissaving. The money saved might be thought of as accumulating, in a sort of fund of virtual wealth that isn't used as entitlements to current production. Obviously, the money remains in individual private ownership rather than collective ownership. The money saved neither circulates nor yields interest.

"Investment" represents the sum of money spent on additions to the capital stock from the fund of non-circulating money. The amount of money diverted into capital expenditure depends on the rate of interest. If the rate of interest is relatively high a relatively large amount of money will be spent on additional capital. If the interest rate is relatively low, a relatively small amount will be spent.

"Savings" represents money withdrawn from expenditure. "Investment" represents money added to expenditure. If savings exceeds investments, demand will be insufficient and capitalists will be obliged to reduce output. As production is reduced the interest rate increases. Investment, consequently increases, while savings falls. When parity is achieved between savings and investments the economy becomes stable at a lower level of output. Similarly, if investments exceeds savings, the demand is excessive and production expands. The expansion of production reduces the interest rate, until savings once again equals investments.

Hence, Keynes theorises an economic system in which production stalls below full employment, but which is self stabilising with regard to various sorts of shock. The stable level of output and the stable interest rate can be derived, theoretically, from the propensities of saving and investment and the marginal efficiency of capital.

about Egon Schiele

This month's lecture is about Egon Schiele's expressionist pictures and their relation to ideas of the avant garde in early twentieth century central europe.

"Why must you write these appalling adumbrations?" someone might say. It's a complicated issue. Mainly I wanted not to think any more about Egon Schiele. What interested me in the subject is:

1. that it can be shown that a good deal of the apparently "inexpressible" content of expressionist works is only reasonably rather than absolutely inexpressible, i.e. it certainly can be expressed, if only in overly complicated, tangled prose.

2. the way pictorial modernism works, for example in Schiele, is illuminating with respect to how political or scientific modernism works, for example in Freud.



Maybe the person asking the first question would also want to say some things about Karl Popper's popular theory of science. I doubt Popper would sign any of these speculations off. We are already exercising taste more than science in identifying the dominant motifs in Schiele's work: abstraction, distorted lines and sex. Relating these motifs to theories put forward, not by Schiele, but by his contemporaries, is to indulge speculation more, and more imprudently.

Notes on Schiele:

1. Artists have always been interested in depicting relations of power. In Schiele's pictures social relations, even at the level of private life, are hardly shown. There are only the traces or imprints of social relations on atomised figures. The conformation of the bodies of Schiele's figures, their few scraps of underwear, and perhaps their hairstyles, seem to be charged with an obscure sociological, even physiological importance. I don't believe Schiele was any less interested in relations of power than his predecessors. In Schiele's pictures, I would suggest, power only attains its proper grandeur, is only really power, and is only of interest, when it operates abstractly. Consequently, Austria-Hungary's hundreds of cavalry officers must have seemed to be only a cheap imitation of power, and of no interest. Likewise the giant banks. In a particular theory of the avant garde, developed by Wassily Kandinsky, real political relations are subsumed by ideal relations. From this it follows that the operative ideal political relations are purely abstract. The world, according to this point of view, coheres as a "spiritual" whole. An image of a tart, paid to undress in a rented room, expresses the inner workings of this world no more or less well than a microscopic slide isolating tuberculosis bacteria.

2. The implicit theory of the avant garde already had an invented "upper" and "lower" section, corresponding to what individual consciousness had or had not yet "comprehended", before Freud's invention of similar agencies hemming consciousness in: the superego and id. Schiele's distorted, nervous lines develop the sort of ambiguities developed in Freud's analyses of dreams. Schiele is drawing at his desk, perhaps, and the lines are simultaneously, or alternately, "channeling" the "upper section" or social superego, and dissimulating against it, and perhaps also counterfeiting this imaginary "upper section", for the benefit of his putative bourgeois patrons, no doubt confined to the "lower section."

3. The purported reality of the "upper" and "lower" sections makes sex ambiguous. As an activity of individual interest, it should be, according to Vygotsky's arguments, productive of knowledge at the individual level. Hence it should be attached to the "upper section". But it is, nevertheless, the means by which the personnel occupying the "lower section" are really reproduced. Very mysterious.

mammon, innit

It's often remarked how President Obama's delivery seems to add depth to whatever he's reading. His gestures really register the nuance that he is able to draw out of his text, which you feel might even have been written by the guy who wrote speeches for Bush. The president is really listening in to his speech. You can hear the same thing in certain Big Youth records, for example (as well as a more realistic political analysis), records which demonstrate more pronouncedly an affect common to inveterate cannabis smokers. I mention this because the text goes no further than blaming the crisis on the profligate tradeurs - officially sanctioned pantomime villains - when the crisis developed directly from the system of mortgaged property.



How different to Bush's speeches! George W seemed to me much more about dramatising how he, Bush, having slugged it out for the prerogative of getting up onto the anthill, could now say without challenge what was the truth, because it was what he was saying.

In the new revolution, Guardian readers

The Guardian's sub editors came up with a brilliantly counterintuitive title for a think piece they featured this week, looking at "colour revolutions":

"In the new revolution, progressives fight against, not with, the poor"

a sort of echo of that record by the Fall: "hate's not your enemy, love's your enemy".

The writer, David Edgar, doesn't try to justify any such thing, but the article's quite interesting insofar as it reflects the disappearance from common knowledge of the concept of the "bourgeois revolution"; a disappearance the article both testifies to and masks.

I don't know anything about David Edgar, other than that he sometimes appears in The Guardian. He explains that in the last years of the Cold War he was involved with a "marxist" journal, without supporting Soviet-style communism himself:

"In 1989, I was one of two non-communist members of the editorial board of the magazine Marxism Today"

...which might seem as paradoxical as being one of two illiterate members of the editorial board of the London Review of Books, but is entirely reasonable in the context of the decomposition of "the left" from the late 70s onward, which is one of the subjects the article addresses. David Edgar tries to conceptualise:

"the colour/flower-coded revolutions of the 21st: from Georgia's 2003 rose revolution via Ukraine's 2004-05 orange revolution to Kyrgyzstan's initially pink or lemon but finally tulip revolution against another crooked post-communist government, later the same year."

I don't think many people would blame Edgar for regarding marxism like a carthorse regards the whip, and wanting to develop a liberal or liberal-friendly position, but in this case the classic liberal position coincides with the marxist postion. Marx's ideas about the causes of social change were based on a widely accepted liberal or radical analysis of the social and economic causes of the French Revolution; causes which were found to be retrospectively applicable, with due modification, to the American Revolution and the Glorious Revolution of 1688. The French Revolution as a whole could be looked at as a "movement" in which the bourgeoisie, having acceded to economic power, exploited popular discontent and thereby acceded to political dominance. Variations on this thesis of the "bourgeois revolution" have been profitably employed by serious analysts from Von Ranke to Poulantzas.

The "20th- century, third-world revolution" represented a quite distinct phenomenon, in which social change in undeveloped countries, already integrated into the world system as undeveloped countries, exerted a different sort of pressure on the existing state and resulted in a different political settlement. As Edgar states:

"Iran in 1979 was a recognisable, 20th- century, third-world revolution, in which the progressive middle class allied with the rural masses to overthrow a hated, foreign-backed autocracy. "

The upheavals Edgar describes in Eastern Europe and in Russia, on the other hand, were classic "bourgeois revolutions" against the bureaucratic "socialist" state, that in no way "presaged a new kind of political movement". They represented the dismantling of the bureaucratic command economy by sections of its ruling class and resulted in its replacement with something approximating the current western version of bourgeois capitalism.

Because Edgar doesn't want to analyse, in retro-marxist fashion, the social structures underpinning the rival groups in the conflicts he describes, he equates the properly bourgeois revolutions in Eastern Europe, and the stalled bourgeois revolution in Iran, with a faction fight in Ukraine and a reactionary coup d'etat in Thailand. The political structure of the state, and the socio-political structure out of which its opponants came, differs in each case. The dynamics of the bourgeois revolution, the genuine "colour revolution", are hardly likely to be replicated in Western Europe, as it already is subject to neo-bourgeois capitalism.

As I said, Edgar's concept of the "21st-century revolution" is as much about replacing the concept of the "bourgeois revolution" as failing to remember it. Extrapolating from the recent events in Iran, Edgar describes a conflict which:

"pits the educated, western-oriented, socially liberal, economically neoliberal urban middle class against the economically egalitarian, socially traditionalist rural poor."

In talking about the "middle class" rather than the "bourgeoisie" Edgar abstracts out the dominant interests on both sides. Hashemi Rafsanjani is no more middle class than his political rivals. The conflict in Iran involves a struggle between two factions of the ruling class, which has been expanded into a struggle for political rights, fought mainly by a section of the "urban middle class" against state power. The entire conflict cannot be reduced to this second struggle.

David Edgar's political aims are good:

"liberty, secularism, free speech, gay rights, civil liberties, enlightenment values and feminism, but also in social diversity, religious tolerance and economic equality"

...and he's right in understanding that the ideas of classic marxism have very little appeal for British newspaper readers. But there is something strange in writing for, as well as about, a middle class "intelligentsia", "progressives"; in effect a putative "class of consciousness", and having to process precise concepts into a sort of ideological babyfood, and so have to talk about a conflict between the "middle class" and "the poor" in the Revolutionary Islamic Republic of Iran.

more notes on functionalism

Without going into the vexed question of functionalism in modern society, and how it is to be reconciled with the idea of "gradations of rank", which is no doubt much more complex than I described...

what I'm interested in is the notion of a functionalism that is imagined to work for a whole society, and a society which is ordered hierarchically, and whose real "gradations of rank" are imaginatively carried over as a necessary organisational principle underlying this functionalism...

since society is to be reproduced as a single intentional entity, a "spiritual" entity, and not a monist system where everything is as important as everything else, or a composite of rather prosaic functionalist parts that do not yet crowd out human subjectivity

We already have a model of "cultural functionalism" (where functionalism works through a hierarchical order etc) in Kandinsky's text. This text makes explicit claims, and its contemporary prestige can be more or less well reconstructed.

According to the logic of "cultural functionalism", truth is concentrated in a single point. This circumstance problematicises humanist culture, the social structure of which is predicated on the idea that people in general are capable of making distinctions between what can be considered "true" and false". If we take humanist culture to be necessarily polyvalent, it might be represented as a horizontal section cut through the "triangle", such that it formally comprehends a "lower section" that supports it and from which its subject matter is drawn, while this culture is itself formally comprehended by an "upper section" it in turn supports.

As I mentioned the question of how an interplay of functionalisms contributes to human culture in any particular society is too complex to adequately address. We can, however, draw some conclusions from the limit case of "cultural functionalism" for which we have Kandinsky's description. What might we expect of a humanist culture inflluenced by these ideas?

1. culturally consistant "upper" and "lower" sections

2. the sacralisation of a practically dormant "upper section" (in bourgeois society, bourgeois humanism would have to invent an imaginary "upper section")

3. the idea that there is a natural trade off between the security of humanism and the inactivity of the "lower section"

Vienna 1900

These quotations were chosen by more erudite writers, first Stefan Zweig, from his autobiography:

"Everyone knew just what he possessed and what he would inherit, what was allowed and what was forbidden. Everything had its norm, its specific mass and gravity. The man of means could calculate exactly ho much interest per annum his fortune would bring him, the civil servant or officer with equal exactitude the year in which he woud gain promotion and the year in which he would retire ... everything in this great realm had its fixed, immovable place; and in the highest place of all the aged Emperor; but should he die, one knew (or thought one knew) that another would take his place, and nothing would change in all this carefully planned order..."

and from a visitor to the Paris World Exhibition of 1900:

"The Austrian section possesses this great interest - that it represents not only the individual efforts of artists and craftsmen, but also the "official" decorative art movement of the State schools. Viewed from this last standpoint there is nothing in the entire Exhibition more admirable, more thoroughly commendable, than the display in question. Is it not wonderful indeed that a Government should have entrusted to those, and those alone, capable of acquitting themselves with credit, the task of decorating and arranging its Exhibition? And is it not still more astonishing that, instead of contenting itself, as most other nations have done, with the reconstruction of ancient styles, more or less national in character, a country should have displayed so much independence, so keen an appreciation of freshness and modernity?"

I intend to look at the problems of the Viennese Secession style as problems of functionalism.

Functionalism, where it is applied to social formations, can be a productive method for analysing societies that are complex and decentred, where rationalistic logic is difficult or impossible to apply. Hence its use develops alongside the development of capitalism, where capitalist development is attended by increased social compexity and the crumbling of central authority.

In American society, and in the Americanised popular culture predominant in Western society, functionalism tends to validate the actions of the popular classes. This could be called "democratic functionalism". It's expressed almost everywhere, but can be seen very clearly in things like The Economist's fetishisation of McDonalds. It has the advantage of fostering a democratic culture, but has the weakness of tending to discount the undemocratic aspects of modern society: centralisation of corporate power, corporate bureaucracy, waste.

A democratic culture develops alongside the development of capitalism in the US, France, China, even in Britain, a sort of monarchy, where a sort of "high" culture is willed into existance, but nevertheless remains stilted, amateurish, out of place in a resolutely modern society*. In France and the US the idea of excellence also becomes mixed up with the idea of democracy, complicating things further.

In Kandinsky's monograph a different kind of fuctionalism is outlined, in which precisely those aspects of the social system relegated to the subjective by "democratic functionalism", are conversely presented as the truly functional aspects of society.

Looking at it today, Kandinsky's monograph might be seen as indirectly describing the apparent logic of one section of contemporary society: that part of the culture industry that doesn't deal with kitsch. But it's surely intended as an explicit description of the society in which he lived: Imperial Germany at the turn of the Twentieth Century. The composite system of capitalism, government bureaucracy and monarchy that existed in Germany also pertained in Austria-Hungary and the principle cities in Russia, though not Russia as a whole.

I think it might be interesting to look at Viennese culture in the early Twentieth Century as if it was informed by the "cultural functionalism" exemplified by Kandinsky. This is to arbitrarily apply a rather incomplete hypothesis, it is not to establish a historical fact.

Things like last year's banking sector bailout point in the direction of the consolidation of an almost feudal degree of class power. Under these circumstances Americanised democratic culture can only be put under further strain. This raises the question as to whether in looking at Vienna at the turn of the Twentieth Century, we aren't looking at the future, with the possibility of understanding that future, and understanding how it is historical.

*I quite like the idea of just writing "notes" about things, and so displaying the fragments of a polemic outside of their functional order, like pictures of antique rifles in an encyclopedia of weaponry. I could have gone on:

"in this respect Coleridge's epic poem can be seen to metaphorise the threadbare hobby humanism of the useless classes, set adrift on a sea of democratic absolutism."

What a thing to say!

Klimt's portrait of Adele Bloch-Bauer

Klimt seems to be quite innocently eulogising bourgeois princess Adele Bloch-Bauer. Klimt was just as innocently enthused by the possibilities of factory production, so it couldn't be said that for Klimt, polite society and the factory floor represented the contrasting faces of the bourgeoisie. And in 1907 the Austrian bourgeoisie could still be considered a progressive force.

(Does this seem right? To try to be more accurate, I feel like this picture praises unambiguously but messes with the oppositional pairs bourgeois-aristocratic and natural-artificial, if that makes sense.)

I don't think you would do something like this now because you would be tempted to cut the goldleaf out from B&H cartons. Or perhaps tastes have changed as much as technology. A contempory picture showing, say, Tony and Cherie Blair embracing on a haptic field of depleted uranium, might neither praise nor naturalise.

about old man Freud

In The Interpretation of Dreams, Freud recounts a story about his father being picked on for being a Jew, in their former home village in Moravia:

"I might have been ten or twelve years old when my father began to take me with him on his walks, and in his conversation to reveal his views on the things of this world. Thus it was that he once told me the following incident, in order to show me that I had been born in happier times than he: "When I was a young man, I was walking one Saturday along the street in the village where you were born; I was well-dressed, with a new fur cap on my head. Up comes a Christian, who knocks my cap into the mud, and shouts. "Jew, get off the pavement!"" - "And what did you do?" - "I went into the street and picked up the cap," he calmly replied."

...which is meant to demonstrate what maturity can be, and how it can be distinctly counter-intuitive. Despite Freud's father having no real choice, and the subsequent history of European anti-semitism, it's hard not to see this story, cut out from history this way, as prefiguring, almost justifying, Mahatma Gandhi's idea of passive resistance,

but on the very next page we learn that:

"One of the first books which fell into my childish hands after I learned to read was Thiers' Consulate and Empire."

So you can imagine old man Freud, suffering being victimised this way, and making his way home, where he sits reading Thiers! I don't think this is an indictment of either Freud, it just illustrates how life is.

...

For various reasons, I was trying to get a copy of Gerard de Nerval's book Visionaries, or the Precursors of Socialism, in English. That it's not available may or may not be a good thing. In restoration France, socialism seems to have been imagined as an obscure menace potentially afflicting the resuscitated old society, somehow mixed up with conspiracy and occultism. Theophile Gautier, somewhere, says all his friends, with the exception of Sainte-Beuve, were medievalists, and this would be a properly medieval outlook. I think it's more disconcerting to encounter people who think we really do live in a total society, than people who think we ought to; like Agamben, who is madder than Cabet ever was. The younger Freud, later author of Civilisation and its Discontents, simply could not understand that societies could exist, had existed, and did exist, in which one faction was permanently pitted against another. Despite that fact that socialism, if it is ever built, can and ought to accomodate aberrant or eccentric behaviour, where possible, the idea of a total society, insofar as it prefigures a rational total society, is a prefiguration of socialism.

notes on Iran

When people risk violence in order to confront their rulers this is driven by biological need more than strategy. It would be a tremendous achievment if the Iranian people succeeded in further democratising their country, and it's regrettable that democracy has to be fought for this way and at such cost. Ahmedinejad probably won the election, and the reform candidate, Mir Hossain Mousavi seems to be like an Iranian Henry Hunt, except more Thatcherite. This isn't really important. It is to be hoped that these recent events strengthen opinion in the West in favour of non intervention in Iranian politics.

1. Economy

Iran has a GDP of approx $165bn, of which oil and gas exports account for approx $35bn, so oil exports account for one fifth of output. Its greatest resource is labour not oil. Iran is a populous country, in comparison to other middle east oil states, with a population of 70m. The country is practically self sufficient in food production, producing $20bn of agricultural products domestically, with net imports of around $1.5bn.

Iran is therefore unlikely to be a victim in a situation of competitive Hobsonian imperialism, where rival countries try to insource skilled labour and outsource unskilled labour, since it is guaranteed foreign currency earnings, and so capital investment, as long as a competitive market for oil exists. Since these factors mitigate in favour of the country remaining politically independent, rather than passive, it is in the national interest, as long as the capitalist system exists, to maintain that independence by guaranteeing the security of food production as much as possible. Whichever political system the country has, it will always be prudent to maintain the current relatively labour intensive agrarian base, insofar as it maximises output.

The prominence of skilled labour, and to a lesser extent diffuse agriculture, mitigate against the development of a terror society. Hence, we can speculate that if the current regime fell apart to be replaced by a bourgeois "directory", the worst-case scenario of the Western pro-Ahmedinejad lobby, the situation might not degenerate hopelessly.

2. Political system

Iran's corporatist political system was established by Islamic revolutionaries in order to lessen the antipathy of rich and poor: of "oppressor and oppressed" as much as possible. As in every corporatist system, the principle of equanimity toward the various classes that constitute class society, each permitted to reproduce itself as itself and nothing more, works itself out in the fusion of the party bureaucracy with the surviving ruling class. Iran's corporatist bureaucracy is now threatened by its bourgeoisie because in reality it cannot bridge the antagonisms generated by capitalism; because it cannot prevent the accumulation of capital; because it redistributes more to the rich through inflation than to the poor through welfare.

In as much as the bureaucracy is threatened from the right it can be said to represent the interests of those groups also threatened from the right: the peasants and commercial middle class. But the regime represents their interests in a rather circuitous way, it is not simply a magnified image of the dominant ideas of these groups. It is a bureaucratic regime principally occupied with its own bureaucratic goals. Karl Marx wrote of the French peasants of 1851: "they cannot represent themselves; they need to be represented", an historically specific argument based on technology as much as ideology. In Iran the peasants are too dispersed to be mobilised, and their patriotism, in this instance, can be thought doubtful. Since it is the children of the commercial middle class, afforded the opportunity of higher education, who are now in confrontation with the regime, the patriotism of this group can be thought doubtful too.

Disclaimer - these are notes based on reports in the UK press and should be judged accordingly

corrections, links

I should have mentioned re the "British Jobs/British Workers" strike, after my rather ad hoc comments, that proper reporting ought to have established first of all:

1. whether Total had reneged on an earlier agreement

2. how much the workers earned, and how this might change

The struggle now does not involve patriotism at all, but whether Total can get away with sacking its workers for going on strike.

Comrade Lenjino on the Lindsay strike

I don't think I could piece together a better analysis of the situation in Iran from English language public domain sources than Louis Proyect has:

here

It's a minefield of disinformation!

Whenever I've checked the blog Vineyard of the Saker I've found it accurate - it quotes a source in Iran, and briefs against Mousavi and Rafsanjani.

This piece about the Baseji, I think, rather oversells this organisation. The goon is ultimately the enemy of the worker, structurally, even.