Tuesday, 4 October 2011

From Kalecki to Minsky and Krugman - Theories of Overproduction and Underconsumption Part 3
In this brief intervention I wish to discuss cursorily, without source or data references, the most popular and frequent type of theories advanced by orthodox and even radical economists about capitalist economic crises. These tend to be cognate or contiguous in the sense that the one, the overproduction theory, is really the obverse of the other, the underconsumptionist. Typically, these theories regard capitalist production as a simple production of goods: in other words, the capitalist economy is simply a historical variant of many other preceding forms of production in that it differs merely in the way in which the social product is distributed. The underlying assumption is that expounded in the 1930s (before Keynes) by Michal Kalecki: capitalism is a system of production divided into capitalists and workers. The workers spend what they earn and the capitalists earn what they spend. In other words, the difference between the classes of capitalists, on one side, and workers on the other has nothing to do with social antagonism with the political control over what is produced, when and how and to whom it is distributed but rather it has to do entirely with the distribution of what is taken to be a technologically-determined process of production where technology and labour processes are entirely external to the capitalist system of production! Now, we know very well that this is quite simply false. But for these so-called radical economists (from Kalecki to Minsky to Krugman even) what matters is not what is produced and how, but rather how the product (understood, once again, to be a technically-given output of production) is distributed between the social classes. It stands to reason, therefore, that the entire problem of capitalist economies all the crises, recessions and depressions have nothing to do with the antagonism of the wage relation with the command of dead labour over living labour but have all to do with how the product of labour and technology is distributed. If capitalists earn too much because wages fall too low, they will be unwilling to consume the surplus earned and therefore aggregate demand will be too low to employ all workers, resulting in higher unemployment. This is called underconsumption. But at the same time it is also underconsumption because workers wages are insufficient to consume the whole product. In the alternative case, if capitalists reinvest their excess earnings there will be overproduction as a result of excessive competition between capitalists which workers will not be able to consume because their wages will be too low to absorb the (excess) production at a given required rate of profit. The resulting lower rate of profit will further remove capitalist incentives to invest unless a political entity like the State intervenes to provide the requisite aggregate demand, with a return to equilibrium between investment and savings and employment. Alternatively, if workers are paid too much in wages due to excessive demand for labour or because of State labour policies, the resulting fall in the rate of profit will again cause a decline in the rate of investment with a consequent rise in unemployment. If the capitalists save or retain their excess profits, there will be underconsumption or deficient aggregate demand which will again result in a crisis that will require State intervention to restore equilibrium conditions. In both these situations, it is the politically-determined or acceptable rate of profit and wage rates that will determine whether the capitalist economy is at equilibrium or not, and therefore whether or not there is a crisis. It can be seen quite readily from this very simple presentation that these widely-held opinions or theories of what constitutes a capitalist economy leave out the most crucial and essential element of capitalism: the social antagonism of the wage relation, of the fact that

workers are not free to decide democratically what is produced and when and how, and then in turn what is to be done with the pro-duct! We can see that in both instances the radical theories of capitalism presented here can oppose only a moralistic objection to capitalist production in terms of the distribution of what is uncritically and unquestioningly accepted to be the process of production as if this were a technically-given, scientific process wholly devoid of political antagonism! That is why bourgeois economists are able to present economics as a science that deals merely with quantities or with optimal distribution of the output of production given basic political assumptions, choices and constraints that are external to economic science itself! Once again, we know that this is entirely false and grievously and perfidiously misrepresents and mystifies the operation of this most odious social system the society of capital. Written by Joseph Belbruno No comments: Email ThisBlogThis!Share to TwitterShare to Facebook

The Social Contract - Theories of Overproduction and Underconsumption Continued

Theories of over-production and under-consumption have this in common then: - that both postulate the existence of a neutral process of production over which the only antagonism possible is over the distribution of the product understood as homogeneous output either (in the Marxist version) of socially necessary labour time or (in the neoclassical version) of the marginal utility of the totality of endowments available for exchange on the free self-regulating market through the price mechanism. We have already considered the apories (or practical contra-dictions) involved in these notions and will not reiterate them here. The important point to understand is that over-production and underconsumption theories both postulate an equilibrium level of profits and wages that (in the neoclassical version) is determined by the original marginal utility of the endowments of individual market participants and (in the Marxist version which is partly a distortion of Marxs position) by the politically-determined share of wages and profits over the distribution of the output. One thing to notice immediately here is that this theory does not explain why, given that output is a homogeneous set of pro-ducts produced with neutral and exogenously given technologies, there should be a class division between workers and capitalists. Put otherwise, if all that is wrong with capitalism is that capitalists may re-invest too much (overproduction) or that workers may consume too little (underconsumption) why, then the answer is all too easy! Simply ensure that capitalists and workers work out (mathematically!) the equilibrium level of wages to profits so that the economy may operate at maximum efficiency with full employment of resources! The whole of economics would then boil down to a simple engineering problem! Because obviously it could never be the case that workers would consume too little unless their wages were too low, or that capitalists would produce too much unless their profits were too high! In other words, in such an economy there would be no distinction, aside from a technical one perhaps (the capitalists would be simple engineers or managers conducting the production process), between workers and capitalists! Everyone could then aspire to become as in the company capitalism utopia a shareholder with a share in the economy commensurate with some labour input or politically-agreed level of income! This is precisely the kind of nonsense that comes out of people like Kalcki and Keynes or Minsky and Krugman! All of these theoreticians deny that capitalist problems and crises have to do with the antagonism of the wage relation because. That would amount to placing the blame on workers! (See Krugman link below. Minsky says as much in Can It Happen Again?) As if, that is, workers should be blamed for an antagonistic relationship in which they are necessarily the exploited party that

is forced and coerced to sell its living activity or living labour in exchange for dead labour in the form of goods and services from the capitalist! http://www.nytimes.com/2011/09/23/opinion/krugman-the-social-contract.html? _r=1&partner=rssnyt&emc=rss Written by Joseph Belbruno No comments: Email ThisBlogThis!Share to TwitterShare to Facebook Monday, 3 October 2011

Theories of Overproduction and Underconsumption - Part 2

The response of capitalist governments to the growing proportion of public debt and of the share of government spending in the economy (now nearing 100%) was a deliberate and radical attempt to turn the tide of the apparent socialisation of capitalist production in the 1980s and 1990s through an aggressive program of privatisation of state industries and services as well as the liberalisation (a relaxation of government-political controls and regulation) of several areas of capitalist production and in especial mode of the financial industry (banking and other financial services). This was exemplified dramatically in the US with the repeal of the GlassSteagall Act, a mainstay of Roosevelts New Deal reforms. All these measures (or reforms) were designed and intended to reverse the tide of socialisation of the capitalist economy in the wake of the inflationary crisis of the 1970s. But in reality the apparent success of this strategy was due in large part to the epochal reversal of politico-economic policy operated by the Chinese dictatorship in the early 1980s which resulted in what has been called the Great Moderation in Western capitalist countries characterised by steady inflation-free growth nearly everywhere. We have often visited these matters on this site and we do not wish to revisit them here. But, as we know, the net result of the Great Moderation was not the end of history: rather, the underlying social antagonism brewing in Western capitalist economies was swept under the carpet through the lowering of the nominal cost of real wages due to cheap imports from China predominantly, which meant that the profits generated by the absolute exploitation of hundreds of millions of Chinese workers could then be recycled in the West through the extension of increasingly unsustainable loans for house-building and consumption. Instead of wage inflation, the capitalist West was fuelling enormous debt bubbles with asset-price inflation that were certain to explode in due course and send the whole system into the greatest crisis since the 1930s. And this is what we are witnessing now. What Bernanke is asking in his speech is for the emerging market economies to expand domestic consumption by appreciating their currencies and diverting their export-oriented industries toward wage goods so that Western capitalist countries may be able to compensate for and resolve its present seemingly insurmountable antagonism through exports to those countries. The chief difficulty with this proposition, as may be already evident, is that any expansion of employment in Western countries will result in much higher social antagonism which is why Bernanke is also suggesting that the West must imitate and replicate the fiscal rectitude of the emerging countries so as to contain what he expects will be social explosions in the West. In our next intervention we will examine how and why the present asset of capitalist institutions is unable to contain the antagonistic push of workers social needs without a repressive turn to rightwing policies aimed at smashing the social network of solidarity that was established as a result of the New Deal in the US and its extension to Western Europe and Japan after World War Two. In the process, we will take a rapid look at the cavernous idiocy of even the best-intentioned bourgeois economic theoreticians and analysts from Minsky to Krugman (and Kalecki and Keynes earlier) in terms of their infantile theories of overproduction and underconsumption as explanations for the current epochal crisis of capitalism. Monday, 3 October 2011

Theories of Overproduction and Underconsumption Bernanke Comments Continued

Perhaps the most important "lesson and implication" to be drawn from Bernanke's revealing speech that we have been dissecting here (with good reason, given the powerful insights it contains from one of the most perceptive and decent proponents of world capitalism) is that the "growth" of so-called "emerging market economies" over the last twenty years has been the result of the sheer horizontalexpansion of capitalist investment originating in the Western "advanced" capitalist countries at the expense of the growing populations of those "emerging" countries that have quite simply (disarmingly) only adopted Western technologies straight from the "tool-box" of Western capitalism so as to be better able to exploit their own "resources" (population, society, land, environment) to drive down real wage costs in the West. And this, what we know as "the Great Moderation", worked until recently when finally the "profits" that originated in the "emerging" capitalist countries could no longer be re-ploughed "profitably" in the West or in the periphery with the resulting financial crisis that we know. Bernanke seems to think that a simple "re-alignment" of currencies and capital flows - and therefore of the "burden of adjustment" - between capitalist countries the world over (core and periphery) may be sufficient to re-start, to re-invigorate the capitalist regime of exploitation toward its "relative" mode: - that is to say, a mode of capitalist exploitation that trades off better living standards for workers in return for higher productivity and profits. The reason behind this proposal is that Western capitalist investments have hit a barrier of profitability in that profitability has been declining steadily since the spread of what we have called the New Deal Settlement through the Marshall Plan in Europe and Japan after World War Two. This conspicuous and utterly undeniable decline is too well-documented and widely accepted even by the most orthodox economists (recall, apart from Keyness perception of the problem, John Hickss decadentist notion of the Labour Standard, Hyman Minskys instability hypothesis, Joseph Schumpeters prophecy of the inevitable decline of capitalist elites and so on) to deserve much discussion in this note. The dramatic rise of State deficits in the US, Japan and Western Europe has reflected precisely this inability of capitalist industry to remain profitable without the added politically-generated demand coming from government institutions that needed to secure the profitability of private capital whilst maintaining social and political stability through infrastructure and transfer investments that secured the reproduction of the society of capital. What State budget deficits entailed and still engender is the inability of private capitalists to command social labour directly, so that the legitimacy of capitalist social relations can be maintained only through the government-political absorption of social consumption (or aggregate demand) by the State because this, once again, was the only way in which private enterprise could be maintained as a pure mythology just as the capitalist social relations of production (the wage relation) became utterly and absolutely incompatible with the private claims of capitalists on the social wealth that is being produced! Put in simpler terms, the decline of the profitability of private capital investments of private command by dead labour over living labour had to be replaced by an ever-expanding politicallycontrolled role in the capitalist economy by the State in order to ensure the continued validity of capitalist social relations of production, of the wage relation, in the society of capital. The obvious result was the burgeoning growth of budget deficits and public debt that we saw in the 1970s and 1980s.