Marx's economic theory is based on his theory of the commodity and how profit is extracted as surplus value based on commodification. Thus, profit (along with profit rate) is the economic driver, which Marx expresses in the expression, M - C - M', meaning that financial investment of money–M–is used to produce commodities for consumption–C– that leads to return on investment as profit extracted as surplus value from the process–M'. Since this is not earned through productive work it is "economic rent" in the sense of classical economics, in which economic rent figured prominently. Marx did not come up with the idea. Rather, he sought to produce a more rigorous account of it.
Conventional monetary policy is based on keeping the interest rate lower than the profit rate, so as not create liquidity preference that overly encourages saving and stifles productive investment. While this may be a factor, it is not the factor, or even the most important factor, which is a reason that monetary policy doesn't work very well if relied on as a policy tool.
Michael Roberts argues that Keynesian fiscal policy that takes demand as the driver as is not necessarily successful either, since the driver isn't money rather than the interest rate. Rather, according to Marxian analysis, the issue is the inherent contradictions in the structure of capitalism as a modification of feudalism. Ownership of capital was substituted for, or melded with ownership of land as a source of rent extraction.
In this view, what is required is a entirely fresh approach based on removing the bias introduced by flawed institutional arrangements, especially bourgeois property ownership, that found the current system on expropriating surplus value as economic rent.
Such a system is not only unfair to workers, but it is also dysfunctional as an economic system. This dysfunctionality leads to political problems, which Marx believed could only be addressed through revolution, since the ownership class as he knew it then would never acquiesce to reform through the political process. But not much has changed in this regard, other than the appearances. The system still depends on rent extraction. What's new is financialization, digitization, and some of the forms that monopolization takes.
While may have conditions have changed drastically since Marx wrote, his analysis of capitalism and its discontents still holds the day, since it is a work in political economy rather than economic theory. Macroeconomics deals with socio-economic systems that involves much more than abstract economic relations since they are historical and dynamic.
Marx and other classical economists like Smith understood this. But the other classical economists were products of their class and remains essentially true to it. Marx, however, broke the mold in claiming that class was the problem. He concluded that an inherently dysfunctional system would either change or be changed. He did not think that the owners of the system would be up for change it themselves, based on noblesse oblige, for example.
Interestingly, Marx lived shortly after the American and French revolutions, which were still lively in memory and certainly shaped his thinking, especially since he was historically inclined having been trained in Hegel.
Now we see the uprising in France where La Marseillaise is again being sung in the streets, this time not against feudal rule but neoliberal.
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3 comments:
"Michael Roberts argues that Keynesian fiscal policy that takes demand as the driver as is not necessarily successful either, since the driver isn't money rather than the interest rate."
Professor Werner disagrees. Shifting from Central Planning to a Decentralised Economy 28 October 2018
In broad brush strokes I think the trend growth rate is driven by the behavior of non-capacity-creating autonomous demand (Z) and fluctuations around that trend are due to fluctuations in private investment.
From a demand-led growth perspective, it can be argued that investment does follow (actual) profitability because the actual rate of profit (r) tends to rise and fall with the rate of capacity utilization (u). For given distribution and normal capital-to-output ratio, the two rise and fall together.
Suppose the economy is initially stationary but that Z begins to grow and continues to do so at a certain rate. Through multiplier effects the growth in Z will induce consumption. Firms will adjust supply to demand by utilizing capacity more fully. As a result, u and (other factors equal) r both rise. This will induce investment.
The additional investment immediately impacts on demand, and this accentuates the positive effect on u and r. But after a delay the investment causes extra capacity to come on line. This constrains the rise in u and r and at a certain point causes a turnaround in both. There will be a collapse in investment.
In this process it can be said that investment follows profitability. But it can equally be said that the collapse in profitability follows the collapse in the utilization rate, which reflects the relative growth rates of total demand and capacity.
At the bottom of the cycle, the turnaround occurs when a continually growing Z once again causes u and r to rise first back toward normal and then beyond normal, eventually inducing another investment boom and enabling the cycle to repeat.
The depth of the crisis following a collapse in u and r will be influenced by other factors. In the most recent crisis, the accumulation of private debt meant that private households and firms could not drive growth in Z. Governments, at least when currency issuers, were in the position to play that role, but they needed to do so in a sustained and persistent way rather than patchily and intermittently (in Europe the reverse policy was often pursued). It was always going to take a long time for private investment to recover because there is little reason to invest in more capacity - including through adoption of productivity-enhancing new technology - while there remains excess capacity.
Excess capacity means a low u. It also means a low r. Either way, it translates into a collapse and then slump in private investment.
I provided a fuller explanation of the above in some old posts. The basic idea is not mine. There is a literature on demand-led growth of this kind, although what I describe is a bit of a hybrid of approaches that are similar but with differences between them. For example, some would relate the process to the normal rate of profit rather than the actual rate. I tend to be influenced by Kalecki, who theorized in terms of the actual rate.
http://heteconomist.com/the-role-of-government-spending-in-fostering-global-growth/
http://heteconomist.com/demand-led-growth-with-cycles-a-simple-model-and-illustration/
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