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Saturday, October 9, 2021

Finance capital and the World Economy — Prabhat Patnaik

THE period of neo-liberalism [corporate capture of the government] witnesses an increase in the share of economic surplus in total output [aggregate economic rent inherent in commodity production in monetary production economies] both in individual countries and also for the world as a whole. This is because the “opening” up of the economy to freer trade in goods and services leads to a rapid introduction of structural-cum-technological change, which, because of its labour-displacing character, keeps down the growth rate of employment, to even below the natural growth-rate of the work-force. The resulting increase in the relative size of the reserve army of labor [surplus workforce] restrains the level of real wages everywhere, even as labour productivity grows massively [through scaling technological innovation], causing a rise in the share of economic surplus [rent extracted by the owners of the means of production].

Such a shift from wages to surplus [rent extraction] depresses the level of consumption demand [effective demand], and hence aggregate demand, and causes a tendency towards an over-production crisis [surplus production]. Since fiscal conservatism at the insistence of finance capital, prevents any offsetting of this tendency through State spending, the only possible counter to it within a neo-liberal economy, is provided by asset price bubbles that also have the effect of boosting demand [wealth effect]. But even if such a bubble perchance gets generated that keeps at bay the over-production crisis for a while, its collapse again pushes the economy into a crisis.... [Minsky]...

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Finance capital and the World Economy
Prabhat Patnaik | Indian Marxist economist and political commentator, Professor (retired) at the Centre for Economic Studies and Planning in the School of Social Sciences at Jawaharlal Nehru University in New Delhi (1974-2010) and formerly vice-chairman of Kerala State Planning Board (2006-2011)
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1 comment:

  1. Ahmed FaresOctober 9, 2021 at 4:52 PM

    The resulting increase in the relative size of the reserve army of labor [surplus workforce] restrains the level of real wages everywhere,

    While this is counterintuitive, the opposite happened in the Great Depression.

    The tendency of real wages to rise despite high unemployment was especially striking during the major depression cycle (1929-37): real wages rose during the initial downturn (1930-31). They rose sharply again in 1933-34 and 1937, despite unemployment rates of 20.9 percent in 1933, 16.2 percent in 1934, and 9.2 percent in 1937 —Ben Bernanke (Essays on the Great Depression p. 207)

    Keynes noted this also.

    But in the case of changes in the general level of wages, it will be found, I think, that the change in real wages associated with a change in money-wages, so far from being usually in the same direction, is almost always in the opposite direction. When money-wages are rising, that is to say, it will be found that real wages are falling; and when money-wages are falling, real wages are rising. —The General Theory of Employment, Interest and Money

    * "money-wages" is what we today call "nominal wages".

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