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A Critique of Pure Bullshit: Part Two: Eichengreen on Ron Paul (Money and Crisis)

August 30, 2011 Leave a comment

Austrian School economists Ludwig von Mises and his student Friedrich A. Hayek

Barry Eichengreen makes much of the role the theories of Friedrich Hayek play in Ron Paul’s world view for a reason that becomes immediately clear:

In his 2009 book, End the Fed, Paul describes how he discovered the work of Hayek back in the 1960s by reading The Road to Serfdom. First published in 1944, the book enjoyed a recrudescence last year after it was touted by Glenn Beck, briefly skyrocketing to number one on Amazon.com’s and Barnes and Noble’s best-seller lists. But as Beck, that notorious stickler for facts, would presumably admit, Paul found it first.

The Road to Serfdom warned, in the words of the libertarian economist Richard Ebeling, of “the danger of tyranny that inevitably results from government control of economic decision-making through central planning.” Hayek argued that governments were progressively abandoning the economic freedom without which personal and political liberty could not exist. As he saw it, state intervention in the economy more generally, by restricting individual freedom of action, is necessarily coercive. Hayek therefore called for limiting government to its essential functions and relying wherever possible on market competition, not just because this was more efficient, but because doing so maximized individual choice and human agency.

Yes, folks: Ron Paul is a follower of the very same theories recently endorsed by that cheap huckster of gold coin: right wing conspiracy theorist nut job, Glenn Beck.

Indeed, Ron Paul hails from that portion of the libertarian movement that is a reactive response to the growing role of the state in the economic activity of society. While Marxists predict this increasing state role — demanding only that state power must rest in the hands of the workers whose activity it is — libertarians of Paul’s type reject this role entirely and warn it can only have catastrophic implications for human freedom. Thus, these two streams of communist thought diverge less significantly in their respective diagnoses what was taking place in 20th Century than in their respective solution to it.

As Eichengreen points out, Ron Paul sees in the ever increasing interference by the state in economic activity a danger to individual freedom and a growing threat of totalitarian statist power, in which the state attempts to determine the individual and society rather than being determined by them. This has echoes among Marxists, who themselves had nothing but disdain for nationalization of industry, and by Marxist writers, like Raya Dunayevskaya, who, during the same period Hayek was developing his own ideas, observed an inherent tendency of the state to organize society as if it were a factory floor.

“At the same time the constant crises in production and the revolts engendered befuddle the minds of men who are OUTSIDE of the labor process… where surplus labor appears as surplus product and hence PLANLESSNESS. They thereupon contrast the ANARCHY of the market to the order in the factory. And they present themselves as the CONSCIOUS planners who can bring order also into ‘society,’ that is, the market.”

Paraphrasing Marx, Dunayevskaya points to the inherent logic of this process:

If the order of the factory were also in the market, you’d have complete totalitarianism.”

What Eichengreen wants to treat as an observation specific to the “loony right” turns out to be a view held in common by both the followers of Marx and the followers of the Austrian School. Moreover, it is not just the fringes of political thought who warned of growing convergence between the state and capital, the mainstream of political thought also recognized this inherent tendency, Eichengreen acknowledges, by citing President Richard Nixon’s famous quote, “we are all Keynesians now.” What emerges from this is a very different impression than the one Eichengreen wishes us to take away from his tawdry attempt to discredit Paul by noting his affinity with Glenn Beck for the writings of Nobel Laureate Friedrich Hayek and the Austrian School within bourgeois economics: As Engels predicted, the state was being driven by Capital’s own development to assume the role of social capitalist, managing the process of production and acting as the direct exploiter of labor power.

While mainstream bourgeois political-economy was treating the convergence of Capital and State power as a mere economic fact, the followers of Hayek and the best of the followers of Marx warn not merely of the effect this process would have on economic activity, but the effect it must have on the state itself — as social manager of the process of extraction of surplus value from the mass of society, the state must become increasingly indifferent to its will, must increasingly treat it as a collective commodity, as a mass of labor power, and, therefore, as nothing more than a collective source of surplus value.

Although lacking the tools of historical materialist analysis, that comes from familiarity with Marx’s own methods, libertarians, like Ron Paul, have actually been able to better understand the implications of increasing state control over economic life than Marxists, who, having abandoned Marx’s methods to adopt spurious theories propagated from whatever academic scribbler, still to this day have failed to completely understand the Fascist State.

*****

Eichengreen, worthless charlatan that he is, deftly sidesteps this critique shared by both Austrians and Marxists of the political impact of growing Fascist State control over the production of surplus value, and instead directs our attention to the entirely phony debate of whether gold as money serves society better than ex nihilo currency to abolish the crises inherent in the capitalist mode of production itself. He begins this foray by admitting the failure of of monetary policy to prevent the present crisis, but poses it as a non sequitur:

Why are Ron Paul’s ideas becoming more popular among voters?

The answer, as is Eichengreen’s standard practice in this bullshit hit piece, is to blame Ron Paul’s popularity on Glenn Beck:

BUT IF Representative Paul has been agitating for a return to gold for the better part of four decades, why have his arguments now begun to resonate more widely? One might point to new media—to the proliferation of cable-television channels, satellite-radio stations and websites that allow out-of-the-mainstream arguments to more easily find their audiences. It is tempting to blame the black-helicopter brigades who see conspiracies everywhere, but most especially in government. There are the forces of globalization, which lead older, less-skilled workers to feel left behind economically, fanning their anger with everyone in power, but with the educated elites in particular (not least onetime professors with seats on the Federal Reserve Board).

Only after we get this conspicuously offensive run of personal attacks on Ron Paul’s reputation, does Eichengreen actually admit: Ron Paul’s ideas are gaining in popularity, because the Fascist State is suffering a crisis produced by a decade of depression and financial calamity:

There may be something to all this, but there is also the financial crisis, the most serious to hit the United States in more than eight decades. Its very occurrence seemingly validated the arguments of those like Paul who had long insisted that the economic superstructure was, as a result of government interference and fiat money, inherently unstable. Chicken Little becomes an oracle on those rare occasions when the sky actually does fall.

Ah! But, even now, Eichengreen, forced to admit, finally, the present unpleasantness, cannot help but label Ron Paul a broken clock for having rightly predicted it in the first place. Okay, fine.

So, it turns out that the banksters really do extend credit beyond all possibility of it being repaid; and, it turns out that this over-extension of credit plays some role in overinvestment and the accumulation of debt, and, it turns out prices spiral to previously unimaginable heights during periods of boom — and, finally, it turns out all this comes crashing down around the ears of the capitalist, when, as at present, a contraction erupts suddenly, and without warning.

This schema bears more than a passing resemblance to the events of the last decade. Our recent financial crisis had multiple causes, to be sure—all financial crises do. But a principal cause was surely the strongly procyclical behavior of credit and the rapid growth of bank lending. The credit boom that spanned the first eight years of the twenty-first century was unprecedented in modern U.S. history. It was fueled by a Federal Reserve System that lowered interest rates virtually to zero in response to the collapse of the tech bubble and 9/11 and then found it difficult to normalize them quickly. The boom was further encouraged by the belief that there existed a “Greenspan-Bernanke put”—that the Fed would cut interest rates again if the financial markets encountered difficulties, as it had done not just in 2001 but also in 1998 and even before that, in 1987. (The Chinese as well may have played a role in underwriting the credit boom, but that’s another story.) That many of the projects thereby financed, notably in residential and commercial real estate, were less than sound became painfully evident with the crash.

All this is just as the Austrian School would have predicted. In this sense, New York Times columnist Paul Krugman went too far when he concluded, some years ago, that Austrian theories of the business cycle have as much relevance to the present day “as the phlogiston theory of fire.”

(I think it is rather cute to see Eichengreen present himself as the disinterested referee between the warring factions of bourgeois political-economy, by gently chiding Paul Krugman for going too far in his criticism of the Austrians — after all, the Fascist State will have to borrow heavily from the Austrian School to extricate itself from its present predicament)

Where people like Ron Paul go wrong, Eichengreen warns, is their belief that there is no solution to this crisis but to allow it to unfold to its likely unpalatable conclusion — unpalatable, of course, for the Fascist State, since such an event is its death-spiral as social capitalist. Apparently, without even realizing it, this pompous ass Eichengreen demonstrates the truth of Hayek’s argument:  Fascist State management of the economy, once undertaken, must, over time, require ever increasing efforts to control economic events, and, therefore, ever increasing totalitarian control over society itself.

Eichengreen pleads us to understand the Fascist State does not intervene into the economy on behalf of Capital (and itself as manager of the total social capital) but to protect widows and orphans from starvation and poverty:

Society, in its wisdom, has concluded that inflicting intense pain upon innocent bystanders through a long period of high unemployment is not the best way of discouraging irrational exuberance in financial markets. Nor is precipitating a depression the most expeditious way of cleansing bank and corporate balance sheets. Better is to stabilize the level of economic activity and encourage the strong expansion of the economy. This enables banks and firms to grow out from under their bad debts. In this way, the mistaken investments of the past eventually become inconsequential. While there may indeed be a problem of moral hazard, it is best left for the future, when it can be addressed by imposing more rigorous regulatory restraints on the banking and financial systems.

Thus, in order to protect widows and orphans from starvation, the Fascist State is compelled to prop up the profits and asset prices of failed banksters and encourage the export of productive capital to the less developed regions of the world market — not to mention, leave millions without jobs and millions more under threat of losing their jobs. Eichengreen even has the astonishing gall to state the problem of moral hazard identified by Austrians, “is best left for the future, when it can be addressed by imposing more rigorous regulatory restraints on the banking and financial systems.” Eichengreen takes us all for fools — did not Washington deregulate the banksters prior to this depression, precisely when the economy was still expanding? If banks are deregulated during periods of expansion, and they cannot be regulated during periods of depression, when might the time be optimal to address moral hazard?

The question, of course, is rhetorical — and not simply because Eichengreen is only blowing smoke in our face. Eichengreen actually argues that Fascist State intervention prevented a depression!:

…we have learned how to prevent a financial crisis from precipitating a depression through the use of monetary and fiscal stimuli. All the evidence, whether from the 1930s or recent years, suggests that when private demand temporarily evaporates, the government can replace it with public spending. When financial markets temporarily become illiquid, central-bank purchases of distressed assets can help to reliquefy them, allowing borrowing and lending to resume.

And, here we can see the role of the thing serving as money and its relation to the crises inherent in the capitalist mode of production. Ex nihilo currency does not abolish crises, it merely masks them from view: while ex nihilo dollar based measures of economic activity indicate the economy suffered a massive catastrophic financial crisis in 2008, gold indicates this financial crisis is only the latest expression of an even more catastrophic depression that has, so far, lasted more than a decade.

NEXT: The tale of two monies

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Eichengreen on Ron Paul and Gold: Part One: A critique of pure bullshit:

August 29, 2011 2 comments

Washington has a problem, and Barry Eichengreen is doing his bit to save it. The problem’s name is Ron Paul, and this problem comes wrapped in 24 carat gold:

GOLD IS back, what with libertarians the country over looking to force the government out of the business of monetary-policy making. How? Well, by bringing back the gold standard of course.

Last week, Eichengreen published a slickly worded appeal to libertarian-leaning Tea Party voters, who, it appears, are growing increasingly enamored with Ron Paul’s argument against ex nihilo money and the bankster cartel through which Washington effects economic policy.

The pro-gold bandwagon has been present in force in Iowa, home of the first serious test of GOP candidates for that party’s presidential nomination. Supporters tried but failed to force taxpayers in Montana and Georgia to pay certain taxes in gold or silver. Utah even made gold and silver coins minted by Washington official tender in the state. But, the movement is not limited to just the US: several member states of the European Union have made not so quiet noises demanding real hard assets in return for more bailout funds for some distressed members burdened by debt and falling GDP.

No doubt, these developments are a growing concern in Washington precisely because demands for real assets like commodity money threaten to blow up its eighty year old control of domestic and global economic activity through the continuous creation of money out of thin air.

Although Eichengreen invokes the difficulty of paying for a fill up at your local gas station, “with a $50 American eagle coin worth some $1,500 at current market prices”; the real problem posed by a gold (or any commodity) standard for prices is that such a standard sounds a death-knell to a decades long free ride for the very wealthiest members of society, and would end the 40 years of steady erosion of wages for working people here, and in countries racked by inflation and severe austerity regimes around the world.

Make no mistake: Ron Paul is now one of the most dangerous politicians in the United States or anywhere else, because his message to end the Federal Reserve Bank and its control of monetary and employment policy has begun to approach the outer limits of a critical mass of support — if not to end the Fed outright, than at least to bring the issue front and center of American politics.

Eichengreen begins his attack on Ron Paul’s call for an end to the Federal Reserve by choosing, of all things, Ron Paul’s own writings as weapon against him:

Paul has been campaigning for returning to the gold standard longer than any of his rivals for the Republican nomination—in fact, since he first entered politics in the 1970s.

Paul is also a more eloquent advocate of the gold standard. His arguments are structured around the theories of Friedrich Hayek, the 1974 Nobel Laureate in economics identified with the Austrian School, and around those of Hayek’s teacher, Ludwig von Mises. In his 2009 book, End the Fed, Paul describes how he discovered the work of Hayek back in the 1960s by reading The Road to Serfdom.

For Eichengreen, Paul’s self-identification with Hayek is a godsend, because, as Eichengreen already knows at the outset of his article, Hayek ultimately opposed the gold standard as a solution to monetary crises:

At the end of The Denationalization of Money, Hayek concludes that the gold standard is no solution to the world’s monetary problems. There could be violent fluctuations in the price of gold were it to again become the principal means of payment and store of value, since the demand for it might change dramatically, whether owing to shifts in the state of confidence or general economic conditions. Alternatively, if the price of gold were fixed by law, as under gold standards past, its purchasing power (that is, the general price level) would fluctuate violently. And even if the quantity of money were fixed, the supply of credit by the banking system might still be strongly procyclical, subjecting the economy to destabilizing oscillations, as was not infrequently the case under the gold standard of the late nineteenth and early twentieth centuries.

Eichengreen pulls off a clever misdirection against Ron Paul by deliberately conflating the problem of financial instability with the problem of limiting Fascist State control over economic activity. Ron Paul’s argument, of course, is not primarily directed at eliminating financial crises, which occur with some frequency no matter what serves as the standards of prices, but at removing from Washington’s control over economic activity not just at home, but wherever the dollar is accepted as means of payment in the world market — and, because the dollar is the world reserve currency, that means everywhere. But, by conflating the question of Fascist State control over the world economy with solving the problem of financial and industrial crises that are endemic to the capitalist mode of production, Eichengreen takes the opportunity to foist an even more unworkable scheme on unsuspecting Ron Paul supporters: privatize money itself:

For a solution to this instability, Hayek himself ultimately looked not to the gold standard but to the rise of private monies that might compete with the government’s own. Private issuers, he argued, would have an interest in keeping the purchasing power of their monies stable, for otherwise there would be no market for them. The central bank would then have no option but to do likewise, since private parties now had alternatives guaranteed to hold their value.

Abstract and idealistic, one might say. On the other hand, maybe the Tea Party should look for monetary salvation not to the gold standard but to private monies like Bitcoin.

It is cheek of monumental — epic — proportion. Even by the standards of the unscrupulous economics profession — a field of “scholarship” having no peer review and no accountability — the sniveling hucksterism of Eichengreen’s gambit is quite breathtaking. However, not to be overly impressed by this two-bit mattress-as-savings-account salesman, in the next section of this response to Barry Eichengreen, I want to spend a moment reviewing his examination of the problem of financial instability, and the alleged role of gold (commodity) money in “subjecting the economy to destabilizing oscillations… under the gold standard of the late nineteenth and early twentieth centuries.”

Part Two: Money and crises

Zizek and the Golden Calf

August 22, 2011 Leave a comment

What is the point of our celebrated freedom of choice when the only choice is between playing by the rules and (self-)destructive violence?

Zizek was never so completely wrong as in his recent post on the problem of analysis posed by the London riots:

“Today’s left faces the problem of ‘determinate negation’: what new order should replace the old…”

In fact, London shows there is no determinate negation!

Zizek asks,

“who will succeed in directing the rage of the poor? Who will translate it into a political programme…”

Unfortunately, this is absolute crap. Heinous! Zizek needs to stop calling for a blueprint for the new society, and see what society is actually doing. Everyone wants to render the riot more profound — Sorry, it ain’t gonna happen. There are no stand-ins in this act. The riot did not lack “a strong body able to reach quick decisions and to implement them with all necessary harshness…” We already have such a body in the executive of the fascist state — the object is to abolish it, not replace it.

Zizek shows the limitations of his philosophy — it seeks THE answer. There is no THE answer, only 6 billion individuals. The only TRUTH is the dollar — it is morality, ethics, and law. The point is not to replace this TRUTH with another one, but to abolish it once and for all time. The moment Egypt became preoccupied with what should replace the masses in the street, the revolution was doomed. There is no plan for the future of society, only the management of things — dead objects we created that must be treated as such.

Everybody wants a new Golden Calf — and communists are like Aaron trying to satisfy this silly demand.

Zizek states:

Although the riots in the UK were triggered by the suspicious shooting of Mark Duggan, everyone agrees that they express a deeper unease – but of what kind? As with the car burnings in the Paris banlieues in 2005, the UK rioters had no message to deliver. (There is a clear contrast with the massive student demonstrations in November 2010, which also turned to violence. The students were making clear that they rejected the proposed reforms to higher education.) This is why it is difficult to conceive of the UK rioters in Marxist terms, as an instance of the emergence of the revolutionary subject; they fit much better the Hegelian notion of the ‘rabble’, those outside organised social space, who can express their discontent only through ‘irrational’ outbursts of destructive violence – what Hegel called ‘abstract negativity’.

Which is to say, the rioters of London made no demands on the existing state. From Zizek, it is clear that because London did not deliver a political demand, analysis of it escapes Marxist critical thought. The limitation must be assigned to Marxist critical thinking: it is incapable of conceiving of any but political and economic demands. When confronted by a movement that makes no demands on the existing state, Marxism must, fall back into outmoded and thoroughly discredited Hegelian notions.

From Zizek we find out this about London:

The protesters, though underprivileged and de facto socially excluded, weren’t living on the edge of starvation. People in much worse material straits, let alone conditions of physical and ideological oppression, have been able to organise themselves into political forces with clear agendas. The fact that the rioters have no programme is therefore itself a fact to be interpreted: it tells us a great deal about our ideological-political predicament and about the kind of society we inhabit, a society which celebrates choice but in which the only available alternative to enforced democratic consensus is a blind acting out. Opposition to the system can no longer articulate itself in the form of a realistic alternative, or even as a utopian project, but can only take the shape of a meaningless outburst. What is the point of our celebrated freedom of choice when the only choice is between playing by the rules and (self-)destructive violence?

The lack of political and economic demands by the rioters on the existing state, says Zizek, “is therefore itself a fact to be interpreted” Are our existing options limited to political conformity within the existing state and “blind acting out” against it? One has to wonder how Zizek manages to arrive this close to the heart of the matter, without tripping over it. Empirically, opposition to the existing state cannot be articulated in the form of political program, or utopian vision; but only in “blind acting out.” Which is to say: the riot placed no demand on the state except that it go away. To the inherently political Marxism, this can only appear as “enigma”, as “blind acting out.” Marxism, which wants nothing more than to replace the existing state with its own “workers’ state”, cannot absorb this message. To demand the state just go away is nihilism, “(self-)destructive violence”.

It never occurs to Zizek that there is no political demand against a state founded on universal suffrage except its abolition. Just as there is no economic demand against Capitalism except the abolition of wage slavery. The fascist state can accommodate any demand except its own abolition, and this demand appears irrational and can only appear this way; since, politically, it is asking for the abolition of universal suffrage itself. Politically, the demand for the end to government by consent of the governed can only be satisfied by the absolute indifference of the fascist state. The larger context of the riot, therefore, is the indifference of the fascist state to the rioter — who seeks only to abolish this indifference. How Zizek manages to miss this is completely fucking beyond me.

Taking from Badiou, Zizek proposes: capitalism is empty of content of its own, “there is no global ‘capitalist worldview…”

Okay, fine. So what now?

Zizek proposes that all critiques of London that begin in the premises of capitalism are inadequate. The conservative view holds the riot was unjustifiable. Zizek argues by contrast, that the riot was not man reduced to beast but the beast itself. The liberal blamed the failure of social programs to fix society’s ills. Zizek argues this failure does not explain the riot itself;  the cynical response of the rioter might be to blame society for an act he himself already knew was inappropriate: “He knows what he is doing, then, but is doing it nonetheless.” If Zizek can acknowledge this consciousness of the inappropriateness of the riot, he can only weakly defend it as an entirely appropriate conscious response to the inappropriateness of existing social relations. He wants to play the worldly disinterested observer of events occurring under his own nose. Indeed, his objective here appears no more than to insert himself as necessary interpreter to us of our own actions.

Having disposed of the riot as the blind acting out of the beast, he can now admonish both Right and Left of their failure to grasp the significance of this beast in their midst. It never occurs to him to state boldly that, from premises of communist society, the riot is nothing more than a blind attempt to abolish property.

Despite his shortcomings thus far in the essay, however, Zizek’s insight into the sudden appearance of the “vigilante units” is surprisingly good:

It is meaningless to ponder which of these two reactions, conservative or liberal, is the worse: as Stalin would have put it, they are both worse, and that includes the warning given by both sides that the real danger of these outbursts resides in the predictable racist reaction of the ‘silent majority’. One of the forms this reaction took was the ‘tribal’ activity of the local (Turkish, Caribbean, Sikh) communities which quickly organised their own vigilante units to protect their property. Are the shopkeepers a small bourgeoisie defending their property against a genuine, if violent, protest against the system; or are they representatives of the working class, fighting the forces of social disintegration? Here too one should reject the demand to take sides. The truth is that the conflict was between two poles of the underprivileged: those who have succeeded in functioning within the system versus those who are too frustrated to go on trying. The rioters’ violence was almost exclusively directed against their own. The cars burned and the shops looted were not in rich neighbourhoods, but in the rioters’ own. The conflict is not between different parts of society; it is, at its most radical, the conflict between society and society, between those with everything, and those with nothing, to lose; between those with no stake in their community and those whose stakes are the highest.

Zizek rightly warns us not to take sides in this internecine conflict, but misses the fact that the whole of political relations are only these two conflicting sides writ large. There is, in reality, a massive population of “those with nothing” to lose, facing a negligible residual of “those with everything” to lose. In fact, all conflict within present day society are fought out within the greater population, while the latter is rarely or ever glimpsed. “The rioters’ violence was almost exclusively directed against their own” because there isn’t anyone else against whom it can be directed. The entire capitalist class has been reduced to a tiny handful of parasites clipping coupons and engaged in speculation, just as Engels predicted. The capitalist class is merely kept alive on life support by the franchise of the vast proletarian majority. For purposes of analysis, it is possible to assume the capitalist class does not exist at all; which clarifies the dilemma facing Marxism:

What is the fascist state?

Once we begin asking this question we can go beyond Bauman, who “characterised the riots as acts of ‘defective and disqualified consumers’” Bauman’s argument only allows Zizek to pass himself as the uniquely disentangled observer decrying, “envy masked as triumphant carnival.” I am sorry, but that view is unacceptable for a communist.

Zizek then links the riot to terrorism and the failed Arab uprisings — the latter having now sunk to a rivalry between the CIA and the Muslim Brotherhood. I am not sure this works, since clearly Egypt and Islam have a different relationship with universal suffrage. Terrorism is an attack on universal suffrage from the outside, while Egypt is only trying to realize a local instance of it. To place the three in the same basket only confuses things, and makes it difficult to understand what is unique about London itself.

I could be wrong about this, but it seems to me this is why Zizek follows this invalid linkage with a demand for a “determinate negation.” The “determinate negation” of Mubarak’s regime is limited government; the “determinate negation” of the insults which led to 9-11 is US exit from Islam’s holy lands. Both of these “determinate negations” is limited in relation to the state.

London, on the other hand, is directed at the existing state itself, at universal suffrage and government by consent of the governed — it is, therefore, neither limited, nor determinate by its very nature.

Categories: Uncategorized

In reality, we must build an anti-statist movement composed entirely of supporters of the state

August 18, 2011 Leave a comment

Tea Party demonstration in Boston, 2010

The central problem posed by the debate in Gonzo Times: how to build an anti-statist movement in a political environment almost entirely populated by supporters of the state?

We have no choice but to assume this is the situation faced by anti-statists who hope to construct a society based on voluntary association. A voluntary association isn’t a product of anti-statist ideologies, but a result of actions by people who employ the state in their interest.

In my opinon, the fight against austerity on the Left, and the fight against the incessant expansion of state spending on the Right, are identical. To realize either aim, you must realize both of them. This practically resolves into a fight against the most wasteful state spending. The profligacy of the fascist state can only be addressed if it targets those expenditures which satisfy no human need whatsoever. And, austerity can only be addressed if it addresses the relentlessly expanding absorption of real social resources by the fascist state.

Poverty and fascist state military expenditures are not two different problems — stated this way, this is self-evident. But, why this is true is often lost on those who oppose the fascist state: and this lack of clarity severely hurts our cause.

Those who oppose the state have their feet in both sides of this debate; some are in movements against wasteful spending and some are in movements against austerity. However, there is no coordination of message among all opponents of the fascist state working in these two movements. In both movements opponents of the fascist state should be showing how poverty and state domination of real social resources are identical.

This domination of real social resources is not just a theoretical fact; it consists of productive capital, and labor power diverted from productive use. It is the same capital and labor power that, were it productively employed, could abolish all poverty in short order. Bringing this truth to both sides of the social debate is important, but not easy — both sides are dominated by fascist state parties and organizations. Both sides are played off against one another for the purpose of maintaining existing political and economic relations.

The opponents of the state have a task to turn what are now two camps battling for control over the state into one camp aiming to abolish it. To do this we need tools and arguments: tools that strip off the veil hiding real relations, and an argument based on those real relations.

I want to propose one tool available to us and it is based on what I think is a basic truth: the lies of the fascist state begin with money.

If you look at the chart in my post to here and on Gonzo Times from yesterday, “Sorry progressives, the Bush tax cuts did not kill the economy”, you can see why this is true. That chart shows there has been two depression since World War II — the economy suffered depression in 1970-1981 and for the last 10 years. Not a single economist admits to this. Not the Fed or a single government agency has ever discussed this, but all know this to be true. The reason why you do not know it to be true is that your attention is focused on dollars, rather than the price of gold.

(In the following part of this post, I don’t want you to get me wrong. I am not arguing for a return to the gold standard — I am just laying out the history.)

States learned pretty early on in the 1800’s that their paper token of money could within limits serve the same function as commodity money. During the Civil War, Congress issued tokens to fund war against the slave states; in World War I, Britain did the same to fund its effort. The Confederacy employed the same token issue to make up for its lack of gold to fund its rebellion. And, it is common knowledge everyone from banksters to states routinely debased money to siphon off whatever portion of wealth they could. Manipulation of the metal content of coin, or excess creation of paper tokens were so routine, we had a habit of biting a coin to test it.

However, this “counterfeiting” was always held in bounds by the fact that these coins and paper were only tokens of a definite quantity of gold or another metal. The state issued a paper token and received real goods in return, but this eventually led to the collapse in purchasing power of the token. The paper tokens were only a claim on gold, and when people cashed in this claim for gold, banks suffered a loss of their real assets. At the same time, you or I could only verify that a paper token of a dollar really was worth a dollar by cashing it in for a gold dollar.

The possibility existed, however, that the paper dollar we accepted in return for our commodity, was not actually equal to a gold dollar.

The possibility that a paper dollar is not actually the equivalent of a “real dollar” is the basis of the discrepancy in the chart I posted. In what now serves as a dollar, there has never been a year over year contraction in the US economy since the Great Depression until now. However, the same data measured by the yardstick of the price of an ounce of gold shows there has been two severe depressions during that time.

The first was the Great Stagflation of the 1970s — an event so severe even today we fear inflation more than unemployment. The second, began in 2001 and has continued uninterrupted until now. The Great Stagflation of the 1970s saw real economic activity collapse by 82% — far more severe than the Great Depression and lasted more than twice as long. This depression has lasted as long as the Great Stagflation, with real economic activity falling some 75% so far.

Just as we saw in the Great Stagflation the collapse of classical Keynesianism, now we see the collapse of neoliberalism. The collapse of the neoliberal consensus stems from the fact that what worked to end the crisis of the 1970s is not working now. The neoliberal consensus was: “free trade agreements”, stable deficit spending, consumer debt, and export of manufacturing. Capital was exported to the low wage periphery, and the excessive profit took the form of consumer debt and US Treasuries financed with artificially low interest rates. This is not working any longer, and the political crisis of the moment consists entirely of a debate over what replaces it.

The fascist state can no longer function in the old way, and a new way of rationalizing Capital has yet to emerge.

Personally, I don’t understand most of this, but I do understand that all statistics regarding the actual economy are a lie. All economic and political analysis that proceeds from the dollar already accepts the Fascist State’s lie in its totality. Exposing the Fascist State on the Left and the Right, begins with ripping off the veil of money and revealing the true state of affairs.

The most important piece of information implied by the chart posted yesterday is the great gap between real and dollar denominated activity. Simply stated, on the chart you can see how far the economy can fall, should the collapse in fiscal and monetary policy continue.

The next most important piece of information provided by analysis based on gold is how deeply the wages of the average worker has been cut. It is not the least bit true that wages have stagnated over the past three decades; the real case is far more horrific: at the highest point in the expansion coming off the Great Stagflation, the average hourly wage was just 40% of what it was in 1970. Measured in dollar terms, the wages of the average worker have never fallen year over year, in gold terms they fell to about 10% by 1980. And, as I stated, they only recovered to about 40% of the 1970 level by 2001, when the economy was again plunged into depression. The real purchasing power of wages right now is about 10% of the level in 1970, and still falling.

These are just 2 examples of how money is providing a cover for Fascist State policy by confusing working people about their own reality. I should be clear at this point: this confusion is not an accident; it is not an artifact of otherwise natural money relations. It is true, as historical materialism argues, that money acts as a veil to hide real relations between individuals in society. However, we are not dealing with money in its “natural form”, i.e., in the form of commodity money. We are dealing with an entirely fictitious form of money; deliberately created to hide from the worker her relation to the state itself. A form created to conceal from her that her exploitation is now managed directly by the fascist state, which acts as the social capitalist.

This effort is best explained by one of the two geniuses who first described how it worked, Lord John Maynard Keynes:

Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school. — Keynes, General Theory, 1936

This is the entire political-economy of the fascist state stated concisely in the words of one of its most profound thinkers: working people will respond to gradual starvation through inflation by working more and longer to make up for the loss of real wages.

Categories: General Comment

Sorry progressives, the Bush tax cuts did not kill the economy

August 17, 2011 3 comments

United States Gross Domestic Product (Gold) 1929-2009

A quick note to slap down the standard progressive interpretation of the impact of the Bush tax cuts on the economy. Sorry folks, there is no real empirical support for your position.

Progressives who praise the Clinton era job creation performance versus Bush era job creation performance, and link this to Clinton tax increases versus Bush tax cuts, overlook two things that lead to the wrong conclusion: First, the Clinton job performance came during a time of a general economic expansion, Bush’s performance came during a general contraction. This fact is lost in the data because the data employs dollars as measure of economic activity and so masks the depression that began in 2001. If you discount the dollar denominated economic data using the price of gold, the contraction clearly shows up beginning in late 2000.

The second thing overlooked with this comparison is that Clinton era job creation (not “Clinton job creation” or “Bush job creation” — the two men created nothing) was exactly the wrong policy. The Clinton era succeeded in creating jobs, true. But it was creating jobs into the face of rising imports from China and other low wage nations and a general glut of capital on the world market. The depression did not appear suddenly because of the Bush tax cuts, but resulted in a too long social work day leading into the Bush era. To put this another way, the Bush era’s poor legacy creating jobs was a legacy of the Clinton era’s success at creating too much superfluous work.

The Bush tax cuts came in response to this, which was already evident as he began his term, and was his justification for the tax cuts. Progressives don’t want us to remember why Bush demanded the tax cuts, but some of us do not have such a short memory. This is not a whitewash of the Bush tax cuts; clearly they failed entirely to stop the depression from emerging and gaining steam — but they did not create the depression. Nor, were they responsible for poor job creation during the Bush and Obama years. It was already baked into the cake by overaccumulation of capital.

For those who are interested, as proof of my argument, I include the chart above showing GDP as measured by gold between 1929-2009. In the chart you can see clearly the three depressions that occurred over those years: 1929-1934, 1970-1981, and 2001-present.

The problem is not, and has never been, Republican anti-tax policies versus Democrat social spending policies — both are a sideshow to chronic overaccumulation of capital. Tax policy cannot fix this.

How EpicPhil leaves us with no options to the present oligarchy

August 16, 2011 Leave a comment

Russian Prime Minister Vladimir Putin

Over at r/Anarcho_Capitalism, writer EpicPhil outlined several objections to my critique of Rothbard’s proposal for the dismantling of the Soviet state planned economy. The gist of his argument seems to be that my plan for reduction of hours of work was not a reasonable alternative to Rothbard’s, and that the utter collapse of the economy was, in fact, an improvement in the living standard of that nation.

This writer is making no sense.

Like Rothbard, I thought a plan of action should be undertaken quickly; but unlike Rothbard, I proposed to start at the bottom of society, not the top.

OK, fair enough.

So, I proposed a simple reform:

Reduce hours of labor by forty percent.

Huh? That’s a top down solution like Rothbards! It requires the state to decree that working hours are reduced by 40 percent.

More importantly, if working hours were reduced by 40%, then MILLIONS of people would have perished. Not only were they already perishing due to the woefully inadequate productivity of labor that existed at the time, but if that low productivity of labor was utilized on a reduced number of hours worked, then productivity would have declined even more.

The problem of the late Soviet Union was not the lack of markets, money or property rights; it was the vast accumulation of superfluous working time embedded in the economy by a rather startling increase in the productivity of labor in the decades following Stalin’s rise to power.

This statement makes it seem like the USSR was an industrial powerhouse that could afford a reduced number of hours worked. The exact opposite was the case.

Events brought Jefferey Sachs, then at Harvard University, to “advise” Boris Yeltsin on the economic policy of the new Russian government. While differing significantly from either Rothbard’s approach, and my own, I think it is fair to say, Sachs proposed a solution a magnitude closer to Rothbard’s than my own. In place of the then existing centrally planned economy, Sachs’ plan sought to establish a working market economy in one bold move.

It was a fucking disaster! — a cruel and unmitigated catastrophe for a nation of honest working people who had no inkling what was about to hit them. A crippling generational cataclysm, from which Jefferey Sachs emerged with his reputation intact, while women were reduced to prostituting themselves for food. Almost immediately the entire wealth of the nation fell into the hands of a tiny oligarchy of former managers of the old state-run economy.

The standard of living of the average Russian increased upon the collapse of communism. The writer thinks that women prostituting themselves for food was a step down? How about women EATING dead people? That’s what many did under Stalin.

That a large proportion of the nation’s wealth ended up being owned by former managers of the state run economy does not in any way represent a step down either. For these managers owned and controlled near 100% of the wealth under communism anyway! The only difference is that they could not be legally competed against economically. After the collapse of communism, they COULD be competed against economically, but there are still remnants of communism in Russia, which has made it a country more along the lines of America: Crony capitalism.

Okay, fine.

To summarize EpicPhil’s objections:

  • My solution is not bottom up, but top down
  • Fewer hours of work would have only increased mass poverty in an already impoverished nation
  • The Soviet Union was not an industrial powerhouse
  • The collapse of the Soviet planning mechanism improved the average Russian standard of living.
  • The rise of the Russian oligarchy represented no real change in economic relations, but actually improved the situation, since now there was competition, however limited by crony capitalism.

If I could generally classify these objections, they seem to fall into these categories: first, how do you implement any stateless society? Second, what are the actual facts regarding the specific circumstances surrounding the collapse of planning in the Soviet Union? Third, what were the actual economic and political relations established by the collapse of Soviet planning?

With regards to EpicPhil’s first objection, I think it is pretty clear that when I argue reform should have started at the bottom and not the top, I was referring not to how these reforms should have been implemented, but whose situation should be considered first and foremost when undertaking the transition. I think I made this pretty clear in my argument. EpicPhil, however, wants to deliberately confuse this point with an entirely separate point: How do we actually achieve any reform? How do we actually effect the abolition of the state?

My argument was simple: Do you start reforming a system by creating an elaborate structure of rules detailing how something as complex and sophisticated as a full fledged market economy is to function, or do you begin by insuring that the transition to an economy with no centralized management and control doesn’t leave people starving for food and unable to find basic necessities of life. For instance, how long can people wait for potable water while — from your perspective — the new owners of the water system figure out how to run things profitably? I would say probably three days — and that is a very steep learning curve even for EpicPhil’s preferred model of organizing society.

Even if we assume the replacement of a centralized state economy by an anarcho-capitalist one, it has to be acknowledged that such things do not emerge overnight. Yes, you can end centralized management and control of the economy simply by not telling people what to do, but now they have to figure it out on their own. And, under Rothbard’s plan, they would have had to do it essentially within an incredibly small window. To be absolutely clear, we are not talking about whether a worker shows up for work the next day, but how you secure all the requirements of a massive and sophisticated steel producing enterprise — raw materials, financing, markets for output, wages, pensions, etc. — all this is now your problem on day one, Mr. Manager. Plus, you have to make sure the Mafia is not selling off the company’s assets out the back door. And, no. The central authority is not there to get your back when your projected output misses the target and you are now so deep in the red you contemplate bankruptcy — in a nation that, owing to the history of planned production, only has one or two suppliers of your goods.

EpicPhil, can I just suggest you stop playing revolutionary for a moment and seriously think about the implications of such a transition?

With regards to EpicPhil’s second group of objections: To assert, as he does, that the standard of living for the average Russian citizen improved after the collapse of the central planned economy is laughable. By every standard of measurement, Russian life spiraled into a cesspool. The death rate jumped as the nation was plunged into an economic catastrophe broadly estimated to have been twice as deep as our own Great Depression. If we cannot agree on the facts, we can’t have a debate on the question. So, my suggestion is for you to go out and find evidence that Russian life improved. Then we can debate the issue.

With regards to EpicPhil’s third objection: Even if we assume your argument: that power remained in the hands of a tiny handful of top managers, who after reform organized themselves into an oligarchy, we only admit that Jeffrey Sachs’ shock therapy was a complete failure from our point of view — i.e., from the point of view that wants to see, not oligarchy replacing state control, but the abolition of both oligarchy and the state. What your objection offers as a suggestion in this regards is not at all clear to me.

I was trying to critically examine Rothbard’s rather bold “thought exercise” on how one goes about actually dismantling the state, what EpicPhil gives anti-statists instead is a plan for doing nothing, but sitting around bitching about it.

Why Rothbard was wrong on the Soviet Union, and why it matters now

August 15, 2011 2 comments

Vladimir Vladimirovich Putin

I am spurred to write this because, thanks to tweep @jdenigma, I was introduced to Murray Rothbard’s “plan for desocialization” of the Russian economy following the collapse of the Soviet Union. Rothbard’s plan was first published in 1992, in the Review of Austrian Economics, and can be found at the Mises Institute website.

In the conclusion of his article Rothbard lays out a summary of his proposal:

The dimensions of the proffered Rothbard Plan for desocialization should now be clear:

  1. Enormous and drastic reductions in taxes, government employment, and government spending.
  2. Complete privatization of government assets: where possible to return them to the original expropriated owners or their heirs; failing that, granting shares to productive workers and peasants who had worked on these assets.
  3. Honoring complete and secure property rights for all owners of private property. Since full property rights imply the complete freedom to make exchanges and transfer property, there must be no government interference in such exchanges.
  4. Depriving the government of the power to create new money, best done by a fundamental reform that at one and the same time liquidates the central bank and uses its gold to redeem its notes and deposits at a newly defined unit of gold weight of existing currencies.

All this could and should be done in one day, although the monetary reform could be done in steps taking a few days.

The terms and  timescale of this proposal are rather breathtaking, considering we are speaking of a major industrial power encompassing a population then numbering about 150 million people, with the world’s largest accumulation of nuclear weapons. Moreover, this was not by any means a typical Western economy: it was heavily centralized, and effectively consisted of a collection of large industrial monopolies created from scratch by an extremely powerful central authority employing the labor of several generations.

For all intents and purposes, the Soviet Union was one giant interlocking company, masquerading as a nation-state — a company town with its own military, police force, courts, diplomatic staff and government.

At the bottom of this immense, complex structure were the women and men who were held as virtual prisoners of a rather brutal and arbitrary party-state management apparatus, which extended its control to every sphere of public and private life. For the most part, they lived at its mercy, although it may be true the grip on their activities was nowhere near as tight as in the days of Stalin.

As might be expected, Rothbard’s plan went nowhere, and mainly comes down to us as the musings of a thinker who boldly conceived on a grand scale about dismantling the existing state.

I made just such an attempt several years before Rothbard along the same lines as part of my honors thesis for my degree in Economics. My ideas, however, began with the assumptions I made above: that the Soviet Union was a company town, and addressing the chronic problems of its final years was not likely something to be undertaken without focusing on the masses of working people trapped under the weight of an oppressive totalitarian monstrosity.

Like Rothbard, I thought a plan of action should be undertaken quickly; but unlike Rothbard, I proposed to start at the bottom of society, not the top. I was not interested in markets, or property right, or laws, or money — I was concerned with the folks who would be threatened by the attempts to establish these.

So, I proposed a simple reform:

Reduce hours of labor by forty percent.

That was my entire proposal.

The problem of the late Soviet Union was not the lack of markets, money or property rights; it was the vast accumulation of superfluous working time embedded in the economy by a rather startling increase in the productivity of labor in the decades following Stalin’s rise to power.

The quickest way to fix this problem was simply to give people more time away from work — to essentially starve the gigantic machinery of production of its supply of human labor power, and force it to restructure and become more efficient. What people did with their newly acquired free time, was not a concern of government.

Not surprising, the Yeltsin government ignored not only Rothbard’s plan, but my own plan as well. Actually, in both cases our effort was not intended to influence events in the former Soviet Union, but to think seriously about what dismantling the state looks like using a real life case study.

Events brought Jefferey Sachs, then at Harvard University, to “advise” Boris Yeltsin on the economic policy of the new Russian government. While differing significantly from either Rothbard’s approach, and my own, I think it is fair to say, Sachs proposed a solution a magnitude closer to Rothbard’s than my own. In place of the then existing centrally planned economy, Sachs’ plan sought to establish a working market economy in one bold move.

It was a fucking disaster! — a cruel and unmitigated catastrophe for a nation of honest working people who had no inkling what was about to hit them. A crippling generational cataclysm, from which Jefferey Sachs emerged with his reputation intact, while women were reduced to prostituting themselves for food. Almost immediately the entire wealth of the nation fell into the hands of a tiny oligarchy of former managers of the old state-run economy.

Sachs now has opinions on how the West should fix its current crisis.

I think there is a lesson in the differences in the approach taken by Rothbard and myself: forget the state-dominated economy and think about people. It is a lesson that should be observed without exception in the present deficit debate.

*****

Yesterday, Mark Thoma offered us an American version of this concern for markets over people in the form of a false menu of options on the deficit debate: we can reduce debt or we can reduce unemployment. This typical Hobbson’s Choice politics, for which the Fascist State excels — offer the sheeple two unpalatable choices:

“Come on Sheeple, do you want to be buried in debt or starve in your freezing houses this winter.”

Since, this is a democracy, the choice between these two options is yours. The menu offered is carefully calibrated for two entirely different audiences: the Tea Party patriot, and the socialist-minded progressive. It is a subtle play on the “Southern strategy”, but with a twist: neither side of this argument is made to change voter’s minds. Which is to say, the aim is not to convert Red states to the blue column, or Blue states to the red column, but to play them off against one another as is.

The argument against deficits is made to both sides on exactly the same terms: more spending will mean more people living on government handouts. If you imagine these folks as the unprecedented numbers of unemployed who have been locked out of the market in labor power — you’re on one side. If you imagine them as lazy niggers who have no wish to work and only want to suck on the teats of producers, you are on the other side.

The “debate” over the deficit requires no more than a fairly adept management and knowledge of The Singular Division in American society — race. This division already exists in ready made form in society — a festering pus-filled wound that is periodically tortured by the Fascist State.

Please, do not tell me I am oversimplifying things — the object of politics is oversimplification. That is why you’re debating the deficit. All this debate comes down to is the deficit on the one hand, and a dysfunctional social stratum of chronic losers on the other. Before you even began debating the deficit you had already formed this simplistic model of the issue in your mind.

For the Tea Party patriot, the deficit comes in the form of everything they are not: smelly brown people speaking in unintelligible tongues. For the socialist minded progressive, it is the unfolding of history: civilization is measured by the degree of the state control of society. The progressive sees society as one giant factory, and wants only for it to be managed according to the principles of Fred Taylor. For the Tea Party patriot, society is a suburb set on the edge of a dangerous crime-ridden ghetto — they want it to be managed by the principles of Bull Connor.

The debate over the deficit does not invent these different views of society, but takes them as its premise. Since, as with all premises of this type, they are self-evident to the participants, we throw no light on the debate by admitting them. All will admit this is a debate on whether society is a prison pen for incorrigibles, or the interior of some gigantic hive of worker bees. Although hesitant to admit to their own views, they well admit that of their opposites — their arguments consists of counter-exposures. So, we only do here for both together what they each do only for the other.

But, anti-statists are not disinterested observers, standing on the sidelines of the great debate. To really grasp the implications of this debate, we must, account for our own presence as well as the contending factions. If we are successful, we won’t end up like Mark Thoma, who imagines himself on the sideline offering value-free advice to the Fascist State.

The first assumption has to be, that we are motivated by the same social process as Tea Party patriot, socialist-minded Progressive and Mark Thoma with his value-free advice to the Fascist State. If we are going to assign the values of Bull Connor to the Tea Party patriot, and the values of Fred Taylor to socialist minded progressives, it is only right to assume Mark Thoma’s value-free advice to the Fascist State is not really free of values.

The values of the Tea Party patriot appears to her as “commonsense thinking”, and this is also true for the socialist minded progressive. So, Mark Thoma’s value-free advice to the Fascist State, like Jeffrey Sachs’ value-free advice to the Yeltsin government in 1992, appears to him as value-free advice, because, for him, it is common sense.

Based on a read of Rothbard’s plan for desocialization of the Russian economy, it would seem anti-statists too are subject to this double fallacy: it is not value-free, but it appears to be sensible to us and without value bias. Rather than trying to argue our view is value-free, we must openly admit our bias, and declare this bias as our starting point.

But, even this is not enough: we must also subject this bias to the same scathing critical treatment we apply to Tea Partiers, progressives, Jeffrey Sachs and Mark Thoma.

No. The world is not a prison pen, nor a factory floor; and our choices are not value-free, and must themselves be the subject of criticism. We must find a place to stand, without for a moment deluding ourselves this place, fraught with hidden fault lines, is Terra Firma. Which is to say we declare we are anti-statists while never imagining we completely grasp the full implication of this position all at once.