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Posts Tagged ‘neoclassical economics’

Worthless money as a rational absurdity

June 5, 2012 3 comments

INTRODUCTION

For a while now, I have been trying to come to grips with the neoclassical theory of money, which states anything can serve as money and that money doesn’t have to be a commodity. The theory is patently theoretically absurd, contradictory and internally inconsistent as John weeks explains in the paper I discuss in my post. Despite these defects, however, neoclassical money theory not only maintains its dominance in economics, its alternative, commodity money theory, is ridiculed and marginalized even among Marxist theorists.

While reading the John Weeks paper, it began to dawn on me why this is true. I had been spending my effort trying to argue for the superiority of commodity money theory, when I should have been trying to understand the circumstances under which neoclassical money theory made sense. Weeks, in his paper, explains two assumptions which are necessary for neoclassical money theory: 1. the economy has to produce only one composite commodity; and 2. the state must be able to control the money supply.

Weeks thinks both of these conditions make neoclassical money theory wrong, but now I believe he is wrong on this. In the capitalist mode of production, the only true commodity is labor power — the single composite commodity required by neoclassical theory. Moreover, contrary to Weeks’ assertion, the state can control the money supply, if we a speaking of classical commodity money. It need only declare commodity money is not money and replace this money in circulation with its own token, i.e., impose an inconvertible currency in place of gold. This was done in the 1930s in the US and Europe. The state can control the money supply, if by “control” that term includes also setting that supply to zero.

The result was a bit of an epiphany for me, since Weeks is describing how Washington directly manages the US economy as a single giant corporation, despite the economy appearing superficially as numerous separate capitals.

The article was rushed and is in need of serious editing, but I welcome criticism and challenges to this idea.

*****

I want to recommend everyone read John Weeks’ paper, “The theoretical and empirical credibility of commodity money“, because he presents a key to the analysis of neoclassical economic theory that unlocks its inner logic. I missed the juicy goodness of his argument in my first read because I have an aversion to mixing math with social criticism. However, in his math Weeks uncover why money is not a commodity-money in neoclassical theory, and why it cannot be a commodity-money.

Weeks tries to make sense of a troubling rejection by neoclassical economic theory to admit to the obvious internal consistency of Marx’s commodity-money theory:

Th[e] theoretical superiority of commodity-based monetary theory has had little practical impact because of a perceived empirical absurdity of the commodity money hypothesis.

I came to my understanding of fascist state issued fiat money based on one closely held idea that neoclassical economics is not irrational, capitalism is. Yes, capitalism is as irrational as it has been declared by Marxists to be, however no one but an idiot would buy into the neoclassical argument unless it made sense in the context of fascist state economic policy. Since capitalism itself is irrational, a rational person looks like an idiot when he buys into its propositions; on the other hand, accepting the irrationality of capitalist relations of production as the basis for formulating fascist state economic policy is rational.

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#OtMA: Wolff’s and Resnick’s “Marxian Interpretation” of the Crisis

February 14, 2012 4 comments

I have been contemplating these two paragraphs for a week now, because they seem to me to sum up the disconnect between Academic Marxism and the actual problems facing the working class today. The quote is taken from an article written by Richard Wolff and Stephen Resnick in 2010, titled “The Economic Crisis: A Marxian Interpretation”.

Indeed, the repeated oscillations between the two theories and their associate policy prescriptions emerge also from a fundamental perspective both sides share. They largely agree that the market system is the best of all known mechanisms to allocate resources efficiently. Many would add that markets also allocate resources equitably. They claim that fully competitive markets enable those who contribute to wealth production to receive rewards (incomes) exactly equal to the size of their contribution. Where the two sides differ is in how to insulate and protect the market system from the criticisms and movements for state economic interventions that flow from citizens who suffer from the economy’s recurring recessions and inflations. Against the criticism and movement, one side argues to ‘‘leave the market alone so that it can find its way to a new, efficient, and just solution.’’ ‘‘No,’’ says the other. ‘‘We need state intervention to help guide the market’s search for a new and efficient solution.’’ Capitalism-defined as private enterprise and free markets-remains the optimum system for both sides in terms of wealth creation and social welfare.

Both sides thus share a profound conservatism vis-a`-vis capitalism, despite holding radically different views on the need for state intervention. The oscillation between them serves their shared conservatism. It prevents crises in capitalism from becoming crises of capitalism, when the system itself is placed in question. It does this by shaping and containing the public debate provoked by crisis-caused social suffering. When serious crises hit a deregulated capitalism, the two sides debate whether the solution is regulation or letting the system heal itself. When serious crises hit a regulated capitalism, the two sides debate whether the solution is deregulation or more or different regulation. This effectively keeps from public debate any serious consideration of an alternative solution to capitalism’s recurring crises: namely, transition to an economic system other than and different from capitalism.

The argument Wolff and Resnick are making is not particularly original; in fact it simply repeats, without any critical analysis, the received wisdom of the two alleged competing views of fascist state economic policy — Keynesian and neoclassical — regarding their policy differences. The Keynesian school wants to regulate the economy, while the neoclassical wants to deregulate it. The neoclassical school wants to leave the market alone, while the Keynesian school wants the state to intervene in the market.

Wolff and Resnick then tell us that the two schools share a common belief in “private enterprise and free markets”, that makes them conservative capitalist alternatives, because they prevent crises from developing to the point where “the system itself is placed in question”, “by shaping and containing the public debate provoked by crisis-caused social suffering”.

Frankly, I don’t know what to make of this “Marxian interpretation” of the division within fascist state economic policy pundits.

First, even if Wolff and Resnick were correct that there is indeed two wings within fascist state economic policy pundits, it is not at all clear to me that these differences amount to “Regulate, regulate” versus “Deregulate, deregulate”. Wolff and Resnick never even bother to discuss whether there even is “private enterprise and free markets”.

Second, Wolff and Resnick argue these differences play merely an ideological function of containing the debate in society within certain tolerable limits. Their argument seems to suggest the point of the division itself is to serve as a safety valve that allows dissent from placing the “system” in question by redirecting public debate. Are there really no policy differences of material significance between the two schools? Is the debate over fascist state policy really all just misdirection?

Third, the last question gets to the heart of what is wrong with this “Marxian interpretation”: Wolff and Resnick offer an argument of sorts the explains the prescription differences within fascist state economic policy, but it does not explain fascist state economic policy itself. Why is there fascist state economic policy? Why was it necessary for the state to undertake a more or less continuous intervention in the economy since the Great Depression?

By contrast, Engels, speaking from the grave fully fifty years before the state undertook this continuous intervention in the economy, described it as the inevitable result of the working out of the historical materialist law of value:

In any case, with trusts or without, the official representative of capitalist society — the state — will ultimately have to undertake the direction of production. This necessity for conversion into State property is felt first in the great institutions for intercourse and communication — the post office, the telegraphs, the railways.

If the crises demonstrate the incapacity of the bourgeoisie for managing any longer modern productive forces, the transformation of the great establishments for production and distribution into joint-stock companies, trusts, and State property, show how unnecessary the bourgeoisie are for that purpose. All the social functions of the capitalist has no further social function than that of pocketing dividends, tearing off coupons, and gambling on the Stock Exchange, where the different capitalists despoil one another of their capital. At first, the capitalistic mode of production forces out the workers. Now, it forces out the capitalists, and reduces them, just as it reduced the workers, to the ranks of the surplus-population, although not immediately into those of the industrial reserve army.

But, the transformation — either into joint-stock companies and trusts, or into State-ownership — does not do away with the capitalistic nature of the productive forces. In the joint-stock companies and trusts, this is obvious. And the modern State, again, is only the organization that bourgeois society takes on in order to support the external conditions of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists. The modern state, no matter what its form, is essentially a capitalist machine — the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over. State-ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.

Not to be misunderstood, Engels emphasizes in a footnote that this intervention would mark a new and different stage for the mode of production and would not just be a policy preference designed to play some ideological function:

I say “have to”. For only when the means of production and distribution have actually outgrown the form of management by joint-stock companies, and when, therefore, the taking them over by the State has become economically inevitable, only then — even if it is the State of today that effects this — is there an economic advance, the attainment of another step preliminary to the taking over of all productive forces by society itself.

Engels argues the continuous intervention in the economy forced on governments in all countries, beginning with the Great Depression, was the inevitable result of economic laws, having nothing to do with containing public debate within tolerable limits. He stated it would mark the displacement of the capitalist class by the state, which would from that point itself function as the capitalist exploiting labor. His argument suggests the debate between the camps within fascist state policy pundits is not merely playing the role of misdirecting public opinion. Instead, these two wings are arguing among themselves over the best policy the fascist state should adopt to maximize the exploitation of the working class.