Bill Mitchell — The origins of the ‘leftist’ failure to oppose austerity

Must-read in its entirety.

I pulled out the key point that limits the Left economically — not recognizing what happened in the transition from a fixed rate monetary system to a floating rate one and continuing to think in terms of the limited policy space available to a fixed rate system.

I note the calls for more discussion on the trap that the ‘left’ has made for itself by buying into the globalisation/political capture myth. As I have noted previously, I am currently researching a new book on this topic which might appear in 2016 but more likely early 2017, such is the delays in publishing. My current research is focusing on the 1960s and 1970s. 

I am exploring the deep infighting within the French state between the ‘Keynesians’ in the planning ministry and the ‘Monetarists’ in the finance ministry, which shaped the way the French ‘left’ dealt with issues of monetary integration and the like. I am also tracing the evolution of ‘left’ macroeconomic thinking, or rather, the absence of it, in the late 1960s as the Bretton Woods fixed exchange rate system collapsed and fiat currency freedom was taken up by governments around the world. 

In 1973, after several years of work, American sociologist James O’Connor published his book “The Fiscal Crisis of the State”, which was considered by many on the ‘left’ to explain why the Keynesian policy era had failed. This book and the derivative literature that followed it was extremely influential among ‘left’ scholars and effectively negated their capacity to challenge, what by the mid-1970s, was becoming the Monetarist resurgence. We can trace back the failure of the ‘left’ to fight against austerity to this period. This is just part of the work I am doing on this topic at present.…

O’Connor was offering what he called the “sociological foundations if state finances” to distinguish his work from what he called the “theoretical bankrupcty … with the mainstream of Western economic thought”.

He considered that “Particular expenditures and programs and the budget as a whole are explicable only in terms of power relationships within the private economy”.
In other words, his theoretical framework was “drawn from Marxist economics and adapted to the problem of budgetary analysis”. 

To begin with, he is “first premise is that the capitalistic state must try to fulfil two basic and often mutually contradictory functions – accumulation and legitimization“.

O’Connor thus transcended the ideas of Marx and Keynes, who saw crises in the economy as a systemic failure to produce sufficient spending to underpin the current rate of capital formation and resulting output, O’Connor placed the source of the capitalist crises directly within these contradictory aims of the state.

But...

It appears that O’Connor didn’t grasp the significance of what happened in August 1971 and proceeded as if nothing significant had changed.,,,

The main point of the blog is that by adopting the mainstream view that a currency-issuing government (in the era of fiat currencies) was financially constrained and could not run continuous fiscal deficits he failed to create a new theory of the state fiscal relations that would underpin a coherent and powerful ‘left’ narrative.

Bill Mitchell – billy blog
The origins of the ‘leftist’ failure to oppose austerity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia