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Can the Capitalist State Ensure ‘Full Employment’ by Providing a Replacement Market?

March 17, 2013

The followers of Keynes believe that when there is a considerable amount of unemployment of workers and machines, the government and the “monetary authority” can create whatever additional purchasing power is necessary to achieve “full employment” by providing a replacement market for otherwise overproduced commodities.

If this is true, the general overproduction of commodities can only arise because of either policy mistakes by governments and central banks or because the governments and central banks deliberately wish to create unemployment. Therefore, according to this view, it is perfectly possible to avoid the periodic mass unemployment created by crises of generalized overproduction without abolishing capitalist production.

If, on the other hand, crises of generalized overproduction occur because the industrial capitalists periodically produce more commodities than can be purchased by the combined purchasing power of the working class, the capitalist class, the middle class, and the state and its dependents, long-term “full employment” is impossible under capitalism.

In order to examine the question of to what extent if at all the capitalist state can create a replacement market for commodities that otherwise cannot find buyers requires an examination of government finance in light of Marx’s fundamental discoveries involving the nature of value, price and money.

It is pretty obvious how the production of commodities can exceed the purchasing power of provincial governments—including the national governments of the euro zone countries—state governments, and local governments—none of which has the power to issue its own currency. During downturns in the industrial cycle, tax revenues of the governments decline. If they spend more than they take in, they must borrow. If the recession is persistent, their debts will grow so that sooner or later they will be forced into bankruptcy, just as happens with private individuals and individual corporations.

But what about the case of governments that can issue their own currency—most famously the U.S. government, whose currency, the U.S. dollar, is widely accepted as a means of payment, not only in the United States, where it is “legal tender for all debts private and public,” but throughout the world? Why can’t the government make up for any gap between the ability or willingness of the “private sector” to purchase commodities and the ability of the industrial capitalists to produce them?

Economic Stagnation, Mass Unemployment, Budget Deficits and the Industrial Cycle

February 17, 2013

A few months ago I had dinner with a some friends from the old days. One of them expressed the view that the current economic situation of prolonged economic stagnation, continuing mass unemployment, and falling real wages represented a fundamental change in the workings of the capitalist system. He asked what is behind this change? This a good question and is worth examining in a non-trivial way.

A month or so ago the media, which had been painting a picture of a steadily improving economy, was startled when the U.S. government announced that its first estimate showed that the fourth-quarter GDP declined at an annual rate of .01 percent. Though slight, this would be a decline nonetheless.

Those economists who make a business of guessing the U.S. government’s GDP estimate expected an annualized rate of growth of 1.5 percent for the fourth quarter (of 2012). This would represent a historically low rate of growth, but growth nonetheless.

The media has been working hard to create an impression of a recovery that is at last gaining momentum. Therefore, if we are to believe the capitalist press, a “new era” of lasting prosperity is on the way. This latest “new era” will be fully assured if only the Obama administration and both Democrats and Republicans can settle their differences on the need to bring the current deficit in the finances of the U.S. federal government under control.

This is to be done by some combination of “entitlement cuts” for the working and middle classes and very modest tax increases for the rich. With the tax question settled by the New Year’s Day agreement, the only question now is how deep the entitlement cuts will be, spending on the military and “national security” being largely untouchable.

Thrown somewhat off balance by the estimated fourth-quarter GDP decline, the economists, bourgeois journalists and Wall Street brokerage houses—ever eager to paint the U.S. economy in glowing terms in order to sell stocks to middle-class savers—explained that “special factors” were behind the slight fall in the estimated GDP, not a new recession.

Behind the Austerity Drive

January 20, 2013

January 2013 marks the beginning of the sixth year since the last crisis began in August 2007 and the fifth year since the crisis reached its climax with the panic on Wall Street in September 2008. Compared to the stormy events of those years, recent weeks have been relatively quiet.

The European debt crisis has at least momentarily eased with the decision of the European Central Bank to expand the euro-denominated monetary base—though much of the European economy remains in the grip of recession with unemployment still rising. In the U.S., the economy remains sluggish as the leaders of the ruling class seek ways to accelerate growth in order to halt and reverse U.S. de-industrialization and prevent a serious social and political crisis.

This is therefore a good time to take a larger view of the current economic situation within the broader long-term evolution of the capitalist system. This month I will focus on the U.S. government deficits and the current austerity drive.

The U.S. federal government is now carrying a debt of over $16 trillion and is fast approaching the current legal maximum of $16.4 trillion. The financial situation of the federal government doesn’t affect only the United States but the entire world, since not only is the U.S. government the world’s biggest borrower, it is also the center of the entire world imperialist system.

Real versus manufactured crises

On New Year’s Day, just as I predicted last month, a last-minute agreement was reached between the Obama administration and the congressional Democrats and Republicans to avert mandatory tax hikes and spending cuts that would have withdrawn as much as $800 billion of purchasing power from the U.S. economy over the next year. If such a withdrawal of purchasing power had actually occurred, the U.S., and perhaps the world, economy would have been thrown into an artificial, government-induced recession that would have aborted the current global industrial cycle. Exactly because of this, there was virtually no chance this would actually happen. Far from seeking to induce a recession, the political leadership of the U.S. ruling class is attempting to accelerate the slow rate of growth of the U.S. economy.

A Major Attack on Labor Rights in the U.S. as the Federal Reserve Makes Another Inflationary Move

December 23, 2012

December 11 brought news of a major new attack on basic labor rights in the United States. The following day, the Federal Reserve announced new inflationary measures designed to end the economic stagnation the U.S. economy has been mired in since the “Great Recession” bottomed out in July 2009.

The new attack on labor rights occurred when Michigan Governor Rick Snyder signed a so-called “right to work” bill in the state that is the home of the U.S. auto industry. Unlike the attacks in Wisconsin and some other U.S. states that targeted the labor rights of state employees, the Michigan legislation—though it affects state employees, with the police being a significant exception—is clearly aimed at Michigan’s highly unionized automobile industry.

So-called “right to work” laws in the U.S. have absolutely nothing to do with the right of workers to a job. The leaders of U.S. capitalism recognize no such right. Rather, under the Taft-Hartley Act of 1947, U.S. state governments can pass “right to work” laws that outlaw the union shop. Under a union shop, all workers are required to pay union dues after their probation period as new hires ends.

Traditionally, such laws have existed in the southern states, with their long history of slavery and post-slavery apartheid-type Jim Crow segregation laws. Ultimately, the “right to work” laws of these states, where unions have always been weak, can be seen as part of the heritage of slavery itself. However, the passage of such legislation in Michigan, a northern state that was never a slave state and was at the very center of the rise of the Congress of Industrial Organizations—CIO—is another matter altogether.

Michigan is the home of the United Automobile Workers, the most powerful industrial union created by the great strike movement of the 1930s. For the first time since the auto bosses were forced to recognize the UAW, the passage of this legislation opens up the real possibility that they are preparing to bust the UAW altogether.

Obama’s Re-election and the ‘Fiscal Cliff’ Fraud

November 25, 2012

Despite polls that showed the U.S. presidential election very close, President Obama was re-elected, though by a narrower margin in the “popular vote” than in the 2008 election. Obama won 50.6 percent of the popular vote, while Mitt Romney obtained 47.8 percent.

Obama’s record

In foreign policy, Obama for the most part continued the polices of George W. Bush. This is not surprising. U.S. foreign policy reflects not the personality of the current occupant of the White House but the needs of the giant monopoly banks and corporations that form the core of U.S. imperialism. The interests of these monopolies are ultimately rooted in the very nature and contradictions of monopoly capitalism and do not change when a new occupant moves into the White House.

In addition, every U.S. president is surrounded by “advisors” who have dedicated their lives to increasing the power of “the Empire.” Then, there are the vast bureaucracies of the “national security state”—the Pentagon, CIA, FBI, NSA and numerous other “intelligence” agencies, whose personnel remain as presidents come and go.

In the unlikely event that a U.S. president ever attempted to buck the interests of U.S. imperialism, the market for government bonds would bring him or her back into line. In any event, there have been no such “problems” with the Obama administration, which has presided over the strongest government bond market in decades.

If the above were not enough, all serious candidates for president from the ranks of either the Democratic or Republican parties are individuals who have shown in practice that they are devoted to the interests of the U.S. world empire. Notwithstanding his African heritage on his father’s side—his mother was white—Obama is no exception to this rule.

The administration claims that it has withdrawn all U.S. troops from Iraq—which no doubt played a significant role in Obama’s re-election. However, there are still U.S. mercenaries and possibly CIA troops operating in Iraq. Most importantly, the U.S. is still very far from recognizing the right of Iraq to self-determination, not to speak of agreeing to pay reparations for the tremendous damage done to that country not only since it was invaded by the U.S. in 2003 but since 1990 through air strikes and sanctions.

In mineral-rich Afghanistan, Obama has actually escalated the war through a Bush-style “troop surge,” though he promises to withdraw “most” U.S. troops by 2014 and end the direct involvement of the U.S. in combat by that date. Obama also launched an air war against Libya in support of a U.S.-inspired rebel movement that in an attempt to win a mass base resorted to racism aimed at Libyans and immigrants of sub-Saharan African descent—a fine role for the first African American U.S. president.

The September 2012 Unemployment Numbers and the ‘Surplus Population’

October 28, 2012

This post concentrates on the U.S. economy. However, the basic trends are the same in all imperialist countries.

On October 5, the U.S. Labor Department issued its monthly estimate of unemployment for September 2012. Much to the surprise of most observers, the figures showed a drop of unemployment from 8.1 to 7.8 percent. For the first time in 44 months, unemployment dropped below the psychologically significant level of 8 percent.

The reported drop in unemployment gave a much needed shot in the arm for the Obama reelection campaign, which had been reeling in the wake of the president’s poor performance in his first debate with Republican challenger Mitt Romney. As could be expected, Democrats were delighted by the unemployment report, which at first glance seemed to indicate that the lagging recovery from the 2007-09 “Great Recession” was finally gaining momentum.

Republicans, on the other hand, were disappointed, and some could hardly hide their anger. Jack Welch, the former head of the General Electric Company and a staunch Republican, infamous for his “downsizing” and layoffs when he was head of GE, even hinted that the unemployment report was deliberately falsified by the Obama administration to boost the president’s chances of reelection.

Is it possible that Welch is right? As we will see, of far greater importance is what the Labor Department’s rate of unemployment actually measures.

The ‘Implications’ of Paul Baran, Pt 2

September 2, 2012

Today, as in the past, the marginalist supporters of the “free market” claim that only the market can rationally assign the labor available to society among the various branches of production. Why? Because only the market can price commodities of different use values according to their relative scarcities. They even have a term for it—“consumer sovereignty.” Under capitalism, these bourgeois economists proclaim, the consumer is king.

Among the supporters of this view was John Maynard Keynes. Not just the young economic liberal Keynes, but the Keynes of the “General Theory.”

He wrote in the last chapter:

“…I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use. There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.”

Paul Baran in the “Implications” strongly disagreed with Keynes on this point as far as monopoly capitalism was concerned, though he seemed to believe it was more or less true for competitive capitalism. According to Baran, even if monopoly capitalism could achieve, with the help of “Keynesian” government spending, something like “full employment” of workers and machines, it would not come close to meeting the rational needs of consumers. In contrast to Keynes, Baran believed that under monopoly capitalism whether nine million out of 10 million workers are employed or the full 10 million are employed, their labor will to a considerable extent be misdirected.

Why did Baran believe that this was so? During the epoch of “free competition”—according to Baran, corresponding to the time of Adam Smith through the time of Karl Marx—the wages of labor were close to biological subsistence, just enough to keep the workers alive and allow them to raise the next generation and little more. This meant that the workers’ consumption was extremely limited. What commodities the workers did get to consume had simple straightforward use values that met their needs to stay alive and raise a new generation. If they hadn’t, capitalism wouldn’t have been possible at all. To this extent, the market mechanism did its job.

The ‘Implications’ of Paul Baran

August 5, 2012

In its July-August 2012 issue, Monthly Review has published a new document entitled “Some Theoretical Implications,” written by Paul Baran, which was originally intended to be a chapter of “Monopoly Capital.” The summer issue also includes the correspondence between Paul Sweezy and Baran during what turned out to be the final weeks of Baran’s life. Written between February and March 1964, we see two of the greatest economists of the 20th century discuss among themselves the “Implications.”

Monthly Review editor John Bellamy Foster put together the “Implications” piece as it appears in the summer 2012 issue from two texts by Baran that were recently found in Sweezy’s papers. These documents were long believed to have been lost, so their discovery and publication is an event of the highest significance for the history of 20th-century economic thought.

Monthly Review plans to publish next year an additional document by Baran that was to be a second chapter on the quality of life under U.S. monopoly capitalism. As it was published in 1966, “Monopoly Capital” has only one such chapter.

While all indications are that Foster has done an extraordinary job editing the Baran documents, they are so important for the history of economic thought it might be a good idea to scan the original texts and make them available online so that future economists and historians can examine them just as Baran and Sweezy left them.

Though all the materials in this fascinating issue of Monthly Review will be posted online before the end of August, I would urge my readers if they possibly can to purchase the issue in hard copy. It is well worth the 12 U.S. and Canadian dollars, 9 euros or 8 British pounds, unless you are really broke.

The importance of the “Implications” document is that it is here that Baran explores the relationship between “the surplus” and Marx’s surplus value. What Marx called surplus value is the most important category of all economics. Ever since “Monopoly Capital” was published in 1966, the question has been asked: Is “the surplus” simply another name for Marx’s surplus value? Or is it something else?

Now a half a century after “Monopoly Capital” was published, we have material that for the first time allows us to answer this question.

Greek Election Signals New Stage in Social and Economic Crisis

June 10, 2012

The May 6 Greek election set off political and financial shock waves and seems to have opened a new phase in the prolonged economic crisis-depression that began in July-August 2007 with the U.S. sub-prime mortgage crisis and has increasingly taken on the form of a social and political crisis as well.

Last February, a deal was worked out in which the Greek governmental debts were written down by about 50 percent. In return, the Greek government was forced to agree to a stiff austerity program aimed at both the employees of the state and workers employed by private capitalists.

Financial circles openly admitted that the austerity polices would further extend and deepen the already five-year-old Greek recession. But they claimed that a really deep recession throughout Europe had been staved off, and the U.S. media reported that the American recovery was now at long last gaining momentum.

The U.S. Labor Department reported a decline in the unemployment rate from around 9 percent last year to just over 8 percent last month. What the capitalist media largely overlooked, however, is that the decline in the unemployment rate was achieved by an alleged decline in the number of people actively looking for work, the exact opposite of what would normally happen during a period of economic recovery.

If it were calculated honestly, the U.S. unemployment rate would show no real decline since the “Great Recession” bottomed out in 2009. The most that could be claimed using U.S. Labor Department data—but not their phony method of calculating the rate of unemployment—is that the U.S. unemployment crisis is not getting any worse. However, the most recent unemployment figures indicate that once again the growth in total employment has fallen well below the level necessary to prevent a long-term rise in unemployment when the growth in the size of the working population is taken into account. So in reality, the long-term U.S. unemployment crisis is still growing.

In Europe as whole, the situation is even worse. While the crisis first broke out in the U.S. in 2007 and reached a climax on Wall Street in the third quarter of 2008, the crisis more recently has been more severe in Europe. Official unemployment is now 11 percent, the highest since 1995, when figures began to be kept for European-wide unemployment.

But unemployment varies considerably from country to country. In Germany, Europe’s most economically powerful country by far, the official unemployment rate is “only” 6.7 percent—considerably better than the official U.S. unemployment figures—while in Spain it is over 24 percent, almost matching the quasi-official U.S. unemployment rate of 24.9 percent in early 1933 at the very bottom of the Great Depression. In Greece, it is 22 percent and rising. Therefore, as far as Spain and Greece are concerned, a new “Great Depression” is no longer a threat—it is a reality.

Reply to Comments by Andrew Kliman and Doug Henwood

May 13, 2012

Andrew’s comments to my extended review of the “The Failure of Capitalist Production” has clarified both the points of agreement and the differences that exist between us in the field of Marxist economics.

First, the agreements. We both agree that the Keynesian-Marxism of the Monthly Review school as it stands is inadequate both as an analysis of monopoly capitalism and as a response to the current historic crisis of the capitalist system that began with the onset of the “Great Recession” in 2007.

We also agree as against Sweezy and Monthly Review that Marx’s law of the tendency of the rate of profit to fall is necessary both to understand the laws of motion of the capitalist system and the problem of capitalist crisis. We agree that Marx and not Keynes provides the answers.

We also agree that the “neo-Ricardian” claim that there are basic inconsistencies in Marx’s theory is value is incorrect. We both uphold Marx’s law of labor value.

We have important differences, however, on our interpretation of Marx’s law of value. I believe that Marx’s law of labor value requires the existence of commodity money, notwithstanding the end of the gold standard at the end of the 1960s and early 1970s. Andrew disagrees. This difference of opinion affects both our interpretation of capitalist crises and our approach to the transformation problem.

In addition, I think there are some misunderstandings on Andrew’s part on what defines a capitalist that should be clarified. In addition, I need to say a little more on the evolution of the rate of surplus value since the end of the post-World II prosperity 40 years ago.

Despite my differences with Andrew, I want to stress what I said at the beginning of this extended review. I liked “The Failure of Capitalist Production” and recommend it to all serious students of the Marxist critique of political economy and students of the present extended economic crisis of capitalism, which is increasingly becoming a grave political crisis—as the recent elections in France and especially Greece reveal.

I also found Doug Henwood’s remarks to be useful as well, since it sheds light on my critique of the attempts to mix Marx and Keynes.

I must stress that the aim of this blog is not to destroy or crush other Marxists with whom I disagree on one and other point, but to advance Marxist economic science in order to get nearer to the truth.

A Critique of Crisis Theory