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

what we need (2): monuments in coloured metal

I saw yesterday that the mayor of London has proposed the building of a giant artpiece, almost as high as the Blackpool tower, for the London Olympics.

the mayor said the Olympic park had needed something extra to arouse "the curiosity and wonder" of Londoners and visitors.



Kapoor and Balmond's Orbit, which will be placed between the aquatics centre and the main stadium, was chosen from a shortlist of three, beating tower-based bids by the artist Antony Gormley and the architects Caruso St John.

Some people have ventured criticism of Anish Kapoor's proposed tower, either because of the cost, or because they favoured Damien Hirst's design, which was to have been a giant statue of a cod fillet in batter, entitled "Jesus Christ (in the presence of children)". But most of the cost of the new structure is to be met by its sponsor, Arcelor Mittal, and for a relatively modest three million pounds of public money, London can house an impressive representation of modern ideology, in coloured metal.

keynesianism 4

These are some notes that hopefully clarify, and put into context, the "hydraulic" model of Keynes' theory, I sketched out here.

1. Firstly, I think Keynes' General Theory is overdetermined. In order for the numbers for output, the rate of interest etc generated by Keynes' model to not be determined twice, ie in order to avoid having two contradictory numbers for one thing, some part of the theory needs to be cut. Basically, you can have either the de jure equivalence of savings and investments, or the technically determined schedule of the efficiency of capital, but not both. Orthodox (which for Keynes meant conservative) economics has generally kept the de jure equivalence of savings and investments (in shorthand "S = N") and forgotten about the technically determined efficiency of capital (which Keynes calls the marginal efficiency of capital, "MEC").

2. The MEC schedule basically relates the use of resources to the rate of profit. Keynes' thinking about this is probably somewhat influenced by Piero Sraffa's 1926 paper about the rate of profit in capitalist society, on the basis of which Keynes brought Sraffa to Cambridge. Sraffa's work is strongly influenced by that of Quesnay, Ricardo and Marx. Hence, there's more of a marxist influence on Keynes than one might assume from checking the index of Keynes' book. It's sort of irrelevant to call the schedule of the rate of profit the "marginal efficiency of capital". If capital markets are to be assumed to be reasonably efficient, marginal profit will be the same as actual profit, but calling it "marginal" makes it sound less like marxism.

3. According to the models of Marx or Sraffa, the schedule of the MEC would be upward sloping. Extra investment would increase the rate of profit, calling forth further investment, with a tendency toward full employment. Both writers examine other tendencies in capitalism which are capable of bringing about severe and chronic unemployment, such as has nearly always characterised capitalist society. In the first case technical progress and the business cycle, in the second monopolistic competition.

4. One of Keynes' innovations is in theorising a downward sloping schedule of the MEC, which determines monetary flows such that an economy subject to price rigidities can stall well below full employment, for want of sufficient effective demand. As output increases, the rate of profit falls, and more money becomes idle, setting a brake on the expansion of output. This intelligible, but as we will see false, model was briefly popular in the US after it was exposited in early editions of Paul Samuelson's economics textbook. It is sometimes called hydraulic Keynesianism. Since then, orthodox macroeconomics has been based on the Hicks-Hansen model, which requires that savings must equal investments. Hicks-Hansen essentially drops MEC to include S = N.

5. The notion that S = N is simply false in a credit money economy (it would only be true in very contrived circumstances). Later Keynesian economists, like Kaldor and Minsky, admit this without criticising Keynes very much for perpetuating this error, but whether or not we accept the de jure equality of savings and investments changes everything.

6. In reality there are three factors ordinarily influencing changes in effective demand: debt extended and serviced, saving and dissaving, productivity. Credit money normally expands with accumulation by the banking sector. Inflation is therefore normal in a capitalist economy, and with it the debauch of capitalist profit. Consequently we can only talk about the efficient use of capital in a capitalist economy vaguely and relatively. It is more difficult than Keynes supposed for effective demand to be reversed. A viable model dealing with the problems Keynes was interested in would need to untangle the notions of credit and money that are confused by Keynes, and situate the fluctuations in effective demand in secular history.

7. It might actually be better to think about a capitalist economy as having two currencies: credit money and cash, with a fixed exchange rate. This unfortunately might make capitalism appear bureaucratic, and hence, perhaps, inefficient.

8. I don't believe we can justify the Keynesian welfare state, or, indeed, the Keynesian military economy, on purely economic grounds. Either these things are worthwhile in themselves, or politically useful, or they are not. Keynes' arguments in favour of public works must be somewhat discounted because capitalist finance does anyway what public works were meant to do (l'inutilité, même).

9. Having said that, there might be something in the idea that a more equal distribution of income leads to greater total output. The explanation for this isn't in Keynes though.

inflation and the rate of profit

Suppose the surplus generated by an economy is a fixed proportion of total production. This might be imagined along the lines of an agricultural economy where a certain amount of the product must be distributed to the labourers involved in its production, and for replenishing the capital used up. We could assign a rate of profit on turnover, Π/Y, based on this information alone, as Quesnay did (or, indeed Sraffa).

If we also know the price level, we can establish the value of working capital, which, ignoring monopoly titles etc, consists of commodities and money. We can consequently calculate the rate of profits proper, Π/C.

The effect of inflation on this economy, if all prices adjust to changes in efective demand at the same rate, will be to increase the values of C, Y and Π proportionately. But real distributable profit: the possible claim on production from profit, is diminished by the increase in the money part of capital. Real profits correspond to Π - ΔMC.

Consequently, inflation can serve to reduce the rate of profit, by a ratio dependant on the monetary composition of capital, and the existing rate of profit.

Possible secondary effects of inflation, through changes in distribution and the scale of production, or changes in methods of finance, have been ignored in order to isolate this primary effect.

"a bad planet"

Economists have sought to develop a science of economic effects, and because there generally isn't a ready terminology for classifying these effects, they tend to be named after other economists; for instance, the effect by which the value of savings is altered by a change in prices is called the Pigou effect, after Arthur Pigou.

It might be appropriate, therefore, to name the effect whereby social insanity is rendered invisible by the surface appearance of technical competence after former Federal Reserve Chairman Alan Greenspan: "the Greenspan effect".

Greenspan certainly wasn't insane himself, he merely entertained some kooky ideas, but it was crazy to appoint him to such a position, taking into account the interests of American capital, or the American public.

It's interesting that for a long time Greenspan was viewed as a sober technocrat, with a harmless private interest in Ayn Rand and Milton Friedman, while subsequent events have demonstrated that he was a confirmed crank who should never have been given such high office. Perhaps in a more rational society Greenspan could have been in charge of the White House stationary budget, but not the Federal Reserve!

At the risk of jeopardising any future career in the banking sector of the British Socialist Federal Republic, I might suggest that the invisibility of Greenspan's eccentricities followed from the technical success, at least in relative terms, of the neoliberal ideology for local managers and bureaucrats, and that it was thought that the success of the ideology at this "common" level implied that it worked at a higher "celestial" level. There was no celestial level, but such is neoliberalism.

These unproven conjectures, running along their own course. can be followed in the opposite diretion, so that correct ideas can be invalidated on account of disharmony with current practice, as much as false ideas can be validated insofar as they are in harmony with this practice. This is what occured to me when I read these comments from the new paper of record, on the subject of Peter Hallward's article in the Guardian about the historical background to the disaster in Haiti.

Perhaps some of the readers of this newspaper imagine that an editorial by a university professor ought to be something like the celestial reflection of a reasonable person's common sense ideas. Hallward is taken to task for writing a piece that isn't consonant with the readers' ordinary experience. The celestiality of Hallward's article is granted, but its genesis and consequences can only be bad, because it sits badly with ordinary experience. Peter Hallward, or perhaps Middlesex University as a whole, appears as a sort of bad planet, interfering with the organisation of things.

A consequence of this way of looking at things is that it might appear that the defence of the victims of the Haitian earthquake ought to involve, in addition to direct aid, defending them from the malign influence of Britain's bourgeois left.

Actually, this attitude does neither any favours. What it defends is the right of Haitians to a thorough British ignorance of Haitian history and politics. But they are necessarily already acutely aware of these things; their innocence does not need to be protected. Haiti is a very polarised society, and different groups might give different answers as to whether or not President Aristide's deposition was a good thing, but the facts aren't really controversial.

So, the British newspaper reader might imagine that Hallward's methodology and political tendency is foreign to Haiti, and as such represents a baleful influence. In fact, Hallward's article is methodologically orthodox, fairly representatitive of majority Haitian opinion i.e. the ideas of the L'Espwa and former Lavalas voters, and decidedly uninfluential for Haitians in Haiti.

If the past thirty years has been characterised by the exploitation of third world countries, facilitated through ostensibly neutral, purely technical, institutions: IMF, World Bank, UN - the institutional reflection of the Washington consensus - this process finds a ready ally in a western popular culture that views third world nations as unruly children: devoid of knowledge and experience, given to episodes of violent temper, requiring instruction.

footnote to previous post

In a typically wry notebook entry, Marx observes that while credit is protestant, money is catholic. Is money catholic? Insofar as the expansion of money debauches existing wealth, we can say with certainty that it's fundamentally illiberal; it violates the liberal principle that in any transfer of wealth, consideration should be given and recieved: it takes without giving.

a model of broad money expansion and inflation

Suppose we look at how an increase in the money supply will impact on a commodity economy subject to fiat paper money or credit money. In both cases we assume that money is created in order to be spent; that is, it represents a straight addition to effective demand. In the first case, it's fairly obvious that the increase in paper money represents a sort of tax on other holders of money in the economy, in proportion to the amount of money they hold. In the second case, the expansion of credit money would have the same effect, provided the same rate of net increase in the money supply can be achieved. But since any particular bank loan is eventually paid back or written off, it doesn't seem obvious that anyone in particular benefits from this process.

In terms of the loan principal alone, borrowing and repaying in a period of rising prices ought to benefit the borrower. But the amount of his gain will, one assumes, be more than offset by the interest repayment, which is a straight transfer of income, and does not affect the money supply directly. The interest repayment will, however, contribute to the banks' profits, and so allow them to increase lending in the next period, maintaining inflation and the debauchery of honest capitalist profits.

The diagram below represents a simplified picture of this process, assuming the amount loaned out in 2006 is repaid in 2007 etc. It includes only the principal on loans, but the expansion of the process is predicated on interest payments.

DE - debt extended
DS - debt serviced



ironic diagram via microsoft paint