fascism with a human face

naïve and sentimental agencies of control (2)

In a way, I am mocking professional economists who do not get that their work is as arbitrary, and as unscientific, as the whole Springtime for Germany scene. But I still ought to be able to define my terms reasonably exactly:

An agency of control is the agency responsible for making decisions about the supply of resources,

e.g.: workers, industrial capitalists, landlords, bankers, parliament.

A sentimental agency of control has cognisance over the operations that generate its net income, and can alter those operations in order to maximise that income. This ought to include claims that are necessarily claims on surplus production,

e.g.: capitalists claiming profit, workers claiming wages, and the government imposing taxes on profits, capital gains, and high incomes.

A naïve agency of control does not have cognisance over the operations that generate its income, and can only attempt to claim income arbitrarily, thereby either fortuitously making a succesful para-sentimental claim, or causing unemployment of people or capital,

e.g.: landlords claiming rent, banks profiting from inflation, goverment imposing taxes on necessary consumption or poll taxes.

The point is, that an argument about the naïvety of the administration of a country is not just an argument about the naïvety of its tax system, but needs to take into account the structure of property, and the banking system, and their claims on production.

nihilism today

Barthes said that while a little formalism takes one away from history, a lot of formalism takes one back to it. One might include, within the scope of formalism, the normative impositions of bureaucratic organisations. The Economist's designers' forgetting, and pretending to forget, what it meant to be a punk, what it meant to be a radical, and what Britain's current government actually represents, finally results in the expression of an unwarranted truth: that the current British government is essentially nihilistic. It really is.

naïve and sentimental agencies of control

Toward the end of his Confessions of an English Opium Eater, De Quincey discusses a pamphlet he tried to put together about Ricardo's economics. I remembered this story, wrongly as it turns out, as being about how De Quincey tried to apply some sort of method from German Idealism, or some kind of drug wizardry, to perfect Ricardo's system. Actually, De Quincey says his ideas could be expressed with algebra. I understand De Quincey's essay was published with his collected works, so maybe I should check it out.

It might be that the amazing aridity of Ricardo's prose contributed to his book's success, because it invited amateur literateurs to feel they could improve on Ricardo's arguments. People today might reasonably argue that Marx really did apply the wizardry of German Idealism, specifically Hegel's philosophy, to Ricardo, even if De Quincey didn't.

But a better marriage might be made between Ricardo's (actually Malthus's) theory of rent and Schiller's theory of naïve and sentimental art.

The theory of rent effectively hypostises -

naïve and sentimental agencies of control.

Capitalist production ought to have a sentimental agency of control, because the capitalist ought to be able to alter his level of production, methods and inputs to maximise his profit. Ricardo argues that rent should also have a sentimental agency of control, because it's against the landowner's interest to fail to rent his land by demanding an excessive rent that cannot be paid. This counterexample of a landowner trying to impose an unpayable rent is an example of a naïve agency of control. Basically, sentimental agencies are good, in the way economics thinks things are good, and naïve agencies are bad.

With these categories, we can easily state the point of neoliberal economics, which is to replace all naïve agencies of control with sentimental agencies of control. Ricardo insists that rent is always subject to a sentimental agency of control, but this isn't necessarily true, as anyone who's noticed the thousands of empty flats in this country will attest. Neoliberal economists are very keen on the theme of the governments naïvety: its subjection of taxation to a naïve agency of control. But the naïvety or sentimentality of the three main forms of claims on the productive economy ought to be considered together:

property - property income (rent)
banking - inflation
government - taxation

retro cinema review: Beverley Hills Cop

When Hegel expressed his observation, that consciousness of social forms as historical forms is often coincidental with their decline, with the aphorism "the owl of Minerva flies only at dusk", he had no way of knowing whether this principle might apply to Top Gun, Trading Places and Beverley Hills Cop.

I'm not sure if the popular background of neoliberalism is disappearing. In any case, the systematisation of pop neoliberalism probably won't speed its decline. But during the 80s and 90s a great mass of the Western professional class found it incredibly persuasive, to the extent that it was taken as nonpolitical modern thinking, rather than an ideology among others, and an ideology bound up with the entrenchment of capitalist dictatorship.

These ideas certainly influenced the cinema of that period, to the extent that a lot of 80s and 90s films hardly do anything more than preach pop neoliberalism.

For instance, if we look at Beverley Hills Cop, it seems that the writers of this film had a strong sense of the rottenness of excessive privilege and excessive bureaucracy, demonstrated by Beverley Hills and its ineficient police force. The environment this creates is unstable and malign, producing naïve and jobsworth cops, neo-feudal Eurotrash gangsters, and gay art lovers.



Capitalism as a whole isn't meant to be like this, it's a salutary lesson about the dangers of market failure. The real Beverley Hills is only pleasant at a superficial level; when viewed through the spectacles of pop neoliberalism, it is flabby and inefficient.

Anyway, just as estrangement from the market is seen to have a degrading effect on people, close contact with the market is seen to have an invigorating effect. So, the writers of Beverley Hills Cop seem to have had the idea that a streetwise person from outside their circle of privilege really ought to be able to play out his decadent contemporaries in Beverley Hills, purely on account of having "marinated" in an environment characterised by strong market imperatives.

Beverley Hills Cop would still work without having a black cop playing out decadent white Californians. The film could have had a streetwise Hispanic cop, or an Australian cop played by Paul Hogan. It wouldn't have worked with Eddie Murphy playing a cop who used to be a Trappist monk, or a professor of philosophy. At least it wouldn't have worked for a generation that voted for Reagan.

great books - by crooks (1)

The Socialization of Money by E. F. Mylius (pdf)

Described by Claude McKay as a "worthless book", Mylius's treatise is like Keynes before Keynes, and without Keynes's mistakes. Proudhon had not come to that learned man's attention.

Anyway, Mylius was the bookkeeper for Max Eastman's Liberator, in which capacity he was able to "privatize" a great deal of money from the magazine's funds. I mention this, but really, why should a person have to have an account of their crimes hung round their neck, like a stupid cow bell? An ordinary person, I mean.

a question about Keynesianism

In the comments under this post at the blaawg Lenins Tomb someone asks:

"I sometimes see leftists argue that the current bourgeoisie is destroying itself by immiserating wage-laborers. They claim that the capitalist system requires workers to buy wage-goods at a certain level, or production will be unbought and profits unrealized. But couldn't the solution be to reduce wages (and increase exploitation) and then sell more ... capital goods, government goods, and luxury goods"?

This cat is asking, what if the bourgeoisie won't realise their surplus value or allow real wages to increase? I suppose in an economy with a commodity for money, there would be permanent deflation, with effective demand being continually reduced by the hoarding of money, and a certain amount of involuntary unemployment. However, this isn't what we see in contemporary capitalism, where there tends to be unemployment and appreciable inflation.

Suppose we really had the two constraints listed above: the bourgeoisie won't realise as production the whole of the difference between feasible production and necessary production, and they won't pay wages high enough to cover the production they won't realise, could this situation be resolved by the bourgeoisie lending money to the workers?

In this case, it would be possible to achieve full employment in the short term, but to maintain it, it would be necessary for workers' net borrowing to continually exceed their repayments: effectively it would be necessary for workers' borrowing to constantly increase. Since there's a technical limit as to how much workers can repay, this isn't possible. At some point a recession must ensue.

It seems that you can generate cycles of expansion and recession, in hypothetical models, by making the assumption that the bourgeoisie impose an artificial maximum income on themselves. This would be an alternative way of generating cyclical dynamics in a model of capitalist development. It's a different way of getting a Keynes or Minsky type theory. I'm not sure it's strictly correct, though.

***

Actually, re comrade's trip to Bradford, isn't the EDL basically a government scheme to employ ex soldiers with Smallhausen Syndrome? to put off anyone opposed to the war?

help for heroes

It is very sad when people end up with schizophrenia, because of drug and alcohol problems, because they've served as soldiers in Afghanistan, or when people lose arms and legs serving in this war. But the propaganda line of the charity "help for heroes" - that the war in Afganistan is heroic because it inflicts injury on British Army soldiers - is ridiculous. I suppose people think that the tangible benefits that this charity provides to injured soldiers makes the tacked on propaganda message OK. I would have thought they were two different things. It seems that, if you dole out a few pounds to the needy, you get to decide what's true and what's not true, just like in the middle ages. What might British Army soldiers have done in Afghanistan?

Perhaps they locked up a taxi driver for years in a metal container, on the basis of false rumours,

or, fired missiles at a wedding reception, then paid $500 to the relatives of the people who died,

or, machine gunned a bus, then falsely claimed the people who died were resistance fighters,

etc etc etc

As I understand it, mostly they sit in the base, or patrol half a mile round the base, checking for IEDs. It would have been better to use the name "help for heroes" for a charity providing for retired racehorses, and collect money for former soldiers in British Legion boxes.

Henry Flynt

AGAINST "PARTICIPATION": A Total Critique of Culture

this is from an archive of articles by Henry Flynt, criticising the pretensions of the artistic culture, so called, into which he'd been - "elevated" - I suppose is the word. There are also some interesting pieces on the Henry Flynt site about Economics and Hill Billy music.



I suppose I'm lucky in being able to be unserious about serious things. Henry Flynt's general attitude is dead right in this picture from 1963. I also find it pretty funny.

lookee here

I was quite surprised the other week to see that the "Beller Meme" had somehow leapt the syntactic grid from Qlipoth to K-Punk abstractdynamics:

If, to use Jonathan Beller's phrase, "to look is to labour" - if, that is to say, attention is a commodity - then aren't we all "contributing", whether we like it or not?

is this true? The public's attention isn't fulfilling any useful function of itself for the advertiser. The advertiser wants the attention of the public only to achieve higher profits, by selling more or selling at a higher price. But that profit has to be realised from total social production, which is diminished by resources being allocated from production to advertising*. The advertiser's gain is the social product he's able to arrogate to himself. The advertising he commissions does not form part of this product, or anyone else's final product or make active means of production more productive. As a social phenomenon the advertiser makes a deduction from the total social product in order to privately appropriate a larger share, in absolute terms, of that product.

The use of advertising tends to diminish society's privately realised surplus product. Consequently, it tends to diminish the rate of profit on revenue. If Daffy Duck's image rights increase in value through advertising, this doesn't mean that society's total surplus product has increased. The point of advertising is the redistribution of the surplus product, not its creation. In any case, capital values in monopoly capitalism tend to be related to profit values by artificially low rates of discount**.

I don't expect anyone will be convinced by this, but really, looking at ads isn't labouring, and we aren't contributing by doing it.

*leaving aside the unlikely possibility of redistribution improving productivity beyond the deadweight advertising cost that engendered it. Index number problems come up with distribution changes, but one can hardly justify calling advertising productive on account of index number problems.

** i.e. lower than the technically determined rate of profit on the commodity value of active means of production.

parody blaawg review: blaawg theory by Dejan

As the proletars of the future, we must resist the easy temptation of the web's obsessive cycles, pointless debates, feedback loops and highly addictive porno. As dr. Fossey succintly explains, these things CORRUPT the pure proletarian heart, whose historic Revolutionary Desire dissolves in the internet's diabolical circuits - the drives of seduction, hedonism, tits, ass, and fornication.

Distracted by this virtual capitalist Sodom, we as the proletar subjects of the future fail on our historic mission - mounting the Resurrection of Comrade Stalin from the love handles of Comrade Slavoy Zizek. We DEVIATE, comrades and comradesses, from the path of freedom. Instead of washing our own laundry, we allow the corrupted Capitalist Machine to do it for us.

What's clever about Dejan's parody is that it doesn't just exaggerate Jodi Dean's analysis, but it exaggerates one aspect while forgetting about another aspect.

Essentially, the parody sets up a contrived choice for the sociologist studying American people, between seeing Americans as:

a. dispossessed and disenfranchised proletars

or

b. comfortable and enfranchised citizens

Jodi Dean's picture of Americans as belonging to category a. is portrayed as ridiculous (I don't know if this is Dean's real position: I haven't read her book. I'm just going by the parody). Consequently category b. ought to be correct. But really, somewhere in the middle would be more correct, because most Americans don't have real political representation, and quite a few are really immiserated. The desire for middle class Americans to have political representation really doesn't necessitate them identifying themselves with nineteenth century factory workers.

But, in a daring dialectical twist, Dejan pretends to have forgotten that Dean's apparent category of barelife proletars presupposes a social technology productive of a proletarariat. A second contrived choice is established concerning the degree of autonomy of Americans, who might be:

a. free to choose freely

or

b. constrained in their choices

Dejan allows that Dean's analysis assumes a. rather than b. and that the Americans really want everything they get, from spectacular wars for the benefit of Dick Cheney to abstract digi porn. They are no longer interested in sex with other humans, prefering the endless autistic reprogramming of the fragments of the human sexual past. In reality, most Americans must be fairly constrained in their choices, but some of them probably do really want it.

If we map Dejan's categories onto the sexuation graph, you can see what I mean.

clowns army

The British government want people to volunteer for the London olympics, with the selling point seeming to be that you get ordered around by McDonalds managers. In times of crisis in the past, Britain's labourers were expected to fall in line behind a landowner with a commission; now they're expected to fall in line behind a clown with a mincing machine.

formez vos bataillons!

Britain shouldn't be allowed to hold the dogging olympics, never mind the olympics proper. It's a country that engages in aggressive war. Perhaps people will reflect on this country's internal and external policy, if they're thinking of working for this lot, for free.



Orwell - official mascot of the London olympics

the labour theory of value

There was a nice tribute to Joan Robinson in the Guardian the other week, which might just have sold a few copies of her Economic Philosophy (3s 6d, the only Robinson book you can easily get). This is a nicely written, and appropriately sceptical, book about economics for the general reader. But for some reason Robinson has a horrible, mystical understanding of Ricardo's labour theory of value. Since the labour theory of value is the basis for the theory of free trade, I think we had better try to reconstruct Ricardo's theory, in the interests of the continued supply of consumer tat.

1. The price of any good can ultimately be decomposed into profit (Π) and labour cost (Λ) items, by adding up the labour cost and profit items of all componant items back to unaided labour. This procedure gives the totals of decomposed labour cost and profit, which I am writing as Λ* and Π*. Labour cost is taken to be a necessary cost of production, and profit represents surplus production.



I1 represents the cost of intermediate goods. This is meant to demonstrate how the price of beer can be broken down to labour costs and profit. I actually regret using the greek letters now.

2. If profit is a function of capital employed in any industry, and tends to an equal rate, across industries and transhistorically, then the sum of all decomposed profits contributing to the price of a commodity will be related to the total capital employed in its production, or decomposed capital, K*. In this case:

K* = aΠ*

where the coefficient "a" is a constant.

3. In classical economics capital is generally taken to be equivalent to annual costs. Since total necessary costs are equivalent to decomposed labour costs, Λ*, it seems reasonable to assume that capital will be a linear function of decomposed labour costs, Λ*, so that:

K* = bΛ*

if this is the case, profit can be expressed as a function of decomposed labour costs:

Π* = (b/a)Λ*

since a commodity's price is the sum of Π* and Λ*, the price, "p" is equivalent to

(1 +b/a)Λ*

price is a linear function of labour applied if the capitalisation of total decomposed labour costs is a linear function of these costs, and labour performed is proportionate to its cost.

4. However, if production is split between different capitalists, for instance if one capitalist produces malt as an input for another capitalist producing beer, then the capitalist working with the produced input, the beer producer, evidently has direct costs exceeding the decomposed labour of his input cost. His costs also include the profit of the malt producer. If the normal classical rule for capitalisation of costs is applied to each capitalist's direct costs, then total capital will cease to be a linear function of total decomposed labour costs.

5. but the classical rule for the capitalisation of costs is only really applicable to pre-industrial capital, in the mid 18th Century this rule would be about right for agricultural capital, merchant's capital and loan capital. In each of these cases a one-off payment of total costs is made in the expectation of a larger return at a specific time in the future. For industrial capital, rates of capitalisation vary.

I've tried to show that Ricardo's labour theory of value was a reasonable scientific theory, and in no way mystical, and why prices in modern industrial capitalism aren't a linear function of decomposed direct labour costs. This fact doesn't invalidate Ricardo's economics, which works just as well with varying rates of capitalisation and profit, it just complicates things. Marx uses "labour" to describe the sum of profit and labour costs, so the price of any good equals its labour value by definition.

senseless restructuring

I could have mentioned, with regard to the last piece, that as well as worse patterns of levy on the productive economy, the other main cause of monetarist recessions is senseless restructuring of industry, like the current British government's policy to restructure the nhs.

a thing about Stiglitz

I'm not sure that this article in The Independent on Sunday represents the best of Joseph Stiglitz. It may be that they just talked to him outside a nightclub.

The guy writing the article is way too impressed with Stiglitz's pseudo-Nobel prize win. They gave this prize to Hayek for a theory of capitalism without profits, which Hayek held to because he thought the notion of profit was communist. The real Nobel committee gives out a prize for genuine breakthroughs in medical research. I would be ashamed of getting the pseudo-Nobel economics prize, and having journalists imagine it was a comparable achievement to curing kids with cancer.

On the other hand, you win enough money to buy a speedboat and a Tuscan villa. Anyway Stiglitz goes on to explain:

"The thing most economists did not fully grasp was the extent to which the banks engaged in murky risk-taking activities. They were taking a risk with our money, their shareholders' money, the bond-holders' money,"

...not to mention the money they generated. The Independent's writer continues:

"Banks were demanding up to 40 per cent of the corporate profits, saying their innovative financing was adding value. But "all this talk about innovation was a sham" because it did not relate to any real increase in the economy's productivity"

I don't think the banks tricked the corporate world out of their profits, exactly. This does approach a theory of an irrational levy imposed by one section of the capitalist economy (banks) against another (productive enterprise). This is important, but it isn't an explanation of crises. It would dampen, rather than exaggerate a boom, and wouldn't of itself generate a crash.

"There was a prima facie case of something screwy going on [with all the] perverse incentives that would lead them to take excessive risk. But there was no way anyone could know or believe that the banks were [conducting themselves] at that level of stupidity. I predicted that there was going to be a collapse because of the information asymmetry problems that were being created."

This is true, but making "information asymmetry problems" the main hinge of the process is sort of silly.

What I wanted to look at in the article is this part:

"If you have a household that can't pay its debts, you tell it to cut back on spending to free up the cash to pay the debts. But in a national economy, if you cut back on your spending, then economic activity goes down, nobody invests, the amount of tax you take goes down, the amount you pay out in unemployment benefits goes up – and you don't have enough money to pay your debts."

"The old story is still true: you cut expenditures and the economy goes down. We have lots of experiments which show this, thanks to Herbert Hoover and the IMF," he adds. The IMF imposed that mistaken policy in Korea, Thailand, Indonesia, Argentina and hosts of other developing countries in the 1980s and 1990s. "So we know what will happen: economies will get weaker, investment will get stymied and it's a downward vicious spiral. How far down we don't know – it could be a Japanese malaise. Japan did an experiment just like this in 1997; just as it was recovering, it raised VAT and went into another recession."

The whole problem of current economic policymaking is encapsulated in Stiglitz's ambiguous "you". Does he mean the government or the economy as a whole? Or is he really equating these things? There's no reason to repeat Keynes's mistakes and pretend that effective demand doesn't tend to increase year on year with increases in the money supply. And in a normal capitalist economy with persistant inflation, government spending necessarily imposes real costs on the productive economy, even pure monetary policy: writing off and reextending the government debt or printing banknotes. These are left wing errors. There are also right wing errors: it is believed that capitalism subsists as a single entity that aims to perpetuate itself. This entails a sort of blindness to the reality that banks or monopolies can institute levies on the productive economy as much as government can. A lot of the problems wrought by the IMF's monetarist policies weren't caused by restriction of the money supply, which they always failed to achieve, but by price deregulation imposing a worse pattern of levy upon the productive economy. A further error is the notion that the economy, if adversely shocked, will enter a "downward spiral", because there is no real profit, for which we have to thank, among others, Friedrich Hayek for his prizewinning stupidity.

Neither Washington nor Tehran, readers.

neoliberalism as cargo cult

Part of what elevated Robert Harris's bestselling novel, The Ghost, from routine airport thriller to literature proper, was Harris's playing about with a sort of joke that ran through popular culture, that Tony Blair was working for the American secret service. It wouldn't be surprising if a few of the current Labour party apparatus read Harris, who is right out of their milieu, and they might like the joke too, because they seem compelled to replace Gordon Brown with some sort of approximation of Tony Blair. The right wing canditates: David Miliband, Edward Miliband and Edward Balls, are really standing as inheritors of Tony Blair's programme, as if the disasterous consequences of that programme were not immediately apparent. They are apparently unable to understand that the picture of reality drawn by neoliberal economics was completely false, that the policies that it validated created an unproductive boom, a financial crisis, and finally a large scale privatisation of the treasury in order to save an unproductive finance sector. More importantly, they are the same spiders who supported the war in Iraq.

Suppose we admit that there's a contradiction between the Labour Party's members' idea of what they're about, and the quite unreal rightism of their prospective leaders. What is the basis of this contradiction?

Marxists talk about the bourgeoisie as the ruling class of capitalist society, but this is only half right. The bourgeoisie, to which must be added the higher strata of capitalist management, exist in a society in which economic power between capitalist firms is relatively diffuse. The real seizure of power by a section of the bourgeoisie, such as occured in Kuomintang China, for instance, inevitably leads to a dictatorship of bourgeois special interests and the suppression of bourgeois capitalism. The normal functioning of bourgeois capitalism requires a separate political apparatus to rule according to the general interests of the bourgeoisie. This is achieved by an overdetermined political system. The electorate really vote for politicians to rule the country, but of necessity have to vote, in aggregate, for acceptable parties. Capitalists merely sustain a political culture which is amenable to the capitalist general interest, through exercising their special interests: through assimilation with politicians, and through the media, a special capitalist interest. Academia and public sector broadcasting are only partly autonomous, and don't really distort the dominant political culture. And everyone's actions are somewhat affected by living and working under capitalism.

Hence:

1. "normal" bourgeois capitalism can be thought of as the rule of politicians, or the hegemony of an autonomous political culture.

2. "normal" bourgeois capitalism requires the partial coincidence of aggregate capitalist special interests with the capitalist general interest, and the partial coincidence of the interests of the electorate, in a rigged game, with the same capitalist general interest.

So, while we might think it would be more rational for the Labour Party to appoint Diane Abbott, the parliamentary party are likely to have problems moving out of the mainstream of an unpopular and irrational political culture that is nevertheless hegemonic, and also offers lavish pensions. It is unfair to describe neoliberalism as a cargo cult, because it does reward certain special interests, even if in its autonomy it fails to serve the capitalist general interest, or the public interest, even.

ambiguities (2) - quasi-intellectualism

The process of thinking is, quite evidently, an ordinary human activity, that occurs in, and usually concerns, reality. The idea that human mental activity, when it concerns itself with general or important issues, ought to be divided up into the properly intellectual and the quasi-intellectual, is a quite unreal mystification. The proper intellectuality proposed by this designation represents nothing other than the coincidence of ordinary human cognition with transcendental orders.

A class of Oxford students dutifully copy down what Sir is saying. But a few have glanced up from their copybooks, and noticing their lecturer hatless, immediately and noisily draw lines through what they've written. The others, hearing the commotion, follow suit. Because the lecturer has a removable paper hat, with a letter "i" on the front, which he wears to distinguish proper intellectualism.

The notion that a real intellectual élite not only exists, but is almost coextensive with the British establishment is patently absurd. One need only consider, for a moment, the establishment's intellectual figures. Christopher Hitchens, for instance, whose only noteable achievement has been his transition from the dumb end of leftism to Cheney apologist, a transition carried out with all the dignity of a pac man ghost. Or schools minister Michael Gove, a farmers' fair exhibit of determined credulity, obediently raising his jug head to be filled with lies he immediately teaches, credulous like Tony Blair, but without Blair's polish and Hearst Heiress glamour, a forty year old boy wizard. Imagine this clown teaching kids to read - teaching kids to read his book Celsius 7/7.

Quasi-intellectualism is a description of human reasoning dreamed up by the deluded, or those who seek to delude others. Nevertheless, it might be worth retaining the concept of quasi-intellectualism, for computer systems and social systems that are more or less deliberately set up to mimic human thought.

Nicholas Kaldor's Scourge of Monetarism

A lot of people are concerned that the Conservative party might deliberately screw up the economy again. I feel like, although before the election might have been a better time, now might be a good time to get to the bottom of Britain's monetarist experiment. This is an an agreable introduction, an article about Sir Keith Joseph, who pushed monetarism in the UK.

"Monetarism has some of the characteristics of Asperger's in its insensitivity and its harshness - that is my point, the man and what he does in life are one. It is important to know this because these people control the destiny of the nation,"

I had a look through Nicholas Kaldor's book The Scourge of Monetarism which is a technical work from the early Thatcher era, rather than a history. Kaldor has some interesting points.



Sir Nicholas Kaldor, the scourge of monetarism

Postulates of monetarism, according to Kaldor

1. prices change in proportion to changes in the money supply
2. the productive economy is not affected by inflation
3. the money supply is determined by the government

Kaldor's critique

I. the money supply as a percentage of income varies widely between countries, or within the same country in different years
II. the money supply is NOT determined by the government

Kaldor's anti-monetarism

III. inflation is caused by the autonomous marking up of prices

With regard to point (1.), the monetarists aren't very far from a Keynesian view that an increase in effective demand will raise prices in normal circumstances, if prices aren't otherwise fixed. The extension of the money supply is an extension of debt, and borrowers are likely to spend a large proportion of borrowed money immediately, otherwise what was the point of borrowing it? The extension of the money supply can be taken for an extension of efective demand. If we accept Keynes's argument that effective demand differs from the money supply, because money can be saved, we can accept that the extension of the money supply increases prices, without supposing proportionality. In addition, we can suppose that Keynesian increases in production with a less marked increase in price are possible in response to an increase in effective demand, and that it's possible for a great proportion of new money to circulate in the purchase and resale of existing assets, without wholly filtering into commodity markets, and increasing commodity prices.

Point (2.) is incorrect, and was held either in order to give the impression that capitalism is amenable to being accurately represented by a Walras type theory that makes it appear perfectly efficient, or the theory of costless inflation was held out of ignorance.

Point (3.) is false, as Kaldor demonstrates. Commercial banks are responsible for changes in the money supply. The government of a capitalist country cannot regulate the money supply itself without risking bankrupting banks, which is politically infeasible. Changes in the central bank's discount rate have some effect on the increase in the money supply, but this is probably best thought of as a benchmark rate set by and for banking capital, which commercial banks can profitably work from. Kaldor's point (II) is correct.

Kaldor's point (I) is certainly correct, but deals with something different from changes in the money supply, changes in effective demand, and changes in prices. It's rather a gratuitous refutation of the pre-Keynesian assumptions of monetarism, and assumes itself that inflation can't be related to increases in the money supply by post-Keynesian arguments. The money supply in toto is related to the capitalisation of costs and opportunities for speculation in existing assets in domestic currency. There is no reason why the ratio of the money supply to income should be the same in 70s Switzerland as in 70s Yugoslavia.

Kaldor's point (III) is incorrect, because it fails to recognise that inflation imposes costs by itself, leaving aside the costs of uncertainty and administering price changes. Kaldor effectively concedes monetarism's point (2.). There is no economic reason why workers can't gear down the rate of profit and improve their real wages. There are several social and political reasons why they don't do this.

public service poster

a public service poster, for when there's another election