There are a lot of details in the post and I would like to hear an exchange over these issues among the relevant parties, that is economists familiar with both MMT and Marx, which I realize is probably only a few.
Michael Roberts (as I understand him from a quick reading) claims that Marx hold that the the profit motive is the driver of capitalism and that Marx further held that investment drives profits. Therefore, he disputes the MMT (Keynesian) claim that effective demand drives profits since, in his view, effective demand depends on investment.
What he appears to overlook that profit is not the only source of investment (re-investment) nor are firm disbursements (wages and dividends) the sole source of effective demand.
MMT points out that both firms and consumers also borrow on credit and credit is really the basis for circulation in a monetary production economy. Minsky showed that financial (credit) cycles drive the business cycles, introducing instability as credit issuance runs up against it the limit and the cycle climaxes in a debt crisis.
MMT points out that both firms and consumers also borrow on credit and credit is really the basis for circulation in a monetary production economy. Minsky showed that financial (credit) cycles drive the business cycles, introducing instability as credit issuance runs up against it the limit and the cycle climaxes in a debt crisis.
In addition, government is a major player in modern economics, so understanding its influence as a primary factor in capitalist economies is crucial.
This is the dynamic that MMT addresses. It seems to me that MMT economists hold that the cycle can be smoothed and downturns ameliorated, but I don't think that they claim that the financial/business cycle can be eliminated.
I think that MMT economists, Marxians and other heterodox economists are close to being in the same page regarding the outcome of liberal economics on ecology and that only state interference can adequately approach the issues, which will necessitate changing the basic nature of economic liberalism one way or other in the direction of socialism. The only way to preserve a modicum of economic liberalism is by imposing true cost accounting that takes externality into account rigorously. Would that be enough? Not really, since there are other isuues.
There are the social consequences of rising inequality. Obviously, the only adequate answer to this is more socialism involving distributive justice aimed at producing common (distributive) prosperity as a public good and a necessity condition for social cohesion.
I am in basic agreement with Michael Roberts' main point, that "capitalism" as economic liberalism (laissez-faire) is the problem and there is no way to fix it and have it remain economic liberalism. This is a key fundamental in the paradox of liberalism, in which social, political and economic liberalism cannot be resolved. Either economic liberalism will dominant at the expense of social and political liberalism, or social and political liberalism will result on the imposition of socialism on capitalism.
This is happening in China, ironically, since China is not socially and economically liberal in the Western sense. But the Chinese government realizes that to stay in power it needs popular approval and adjust its policy based on public opinion, which it researches carefully. As a result the China government has the overwhelming approval of the populace, while the opposite is the case in the West.
However, it must also be noted that in the West, economic liberalism as laissez-faire is no longer the case, even though the principles are advocated. Rather, the reality now is neoliberalism, which is state capture by capital through institutional arrangement that class power is used to impose to its advantage. This is the basis issue facing the world today, since neoliberalism is joined at the hip with neo-imperialism and neocolonialism.
This is the dynamic that MMT addresses. It seems to me that MMT economists hold that the cycle can be smoothed and downturns ameliorated, but I don't think that they claim that the financial/business cycle can be eliminated.
I think that MMT economists, Marxians and other heterodox economists are close to being in the same page regarding the outcome of liberal economics on ecology and that only state interference can adequately approach the issues, which will necessitate changing the basic nature of economic liberalism one way or other in the direction of socialism. The only way to preserve a modicum of economic liberalism is by imposing true cost accounting that takes externality into account rigorously. Would that be enough? Not really, since there are other isuues.
There are the social consequences of rising inequality. Obviously, the only adequate answer to this is more socialism involving distributive justice aimed at producing common (distributive) prosperity as a public good and a necessity condition for social cohesion.
I am in basic agreement with Michael Roberts' main point, that "capitalism" as economic liberalism (laissez-faire) is the problem and there is no way to fix it and have it remain economic liberalism. This is a key fundamental in the paradox of liberalism, in which social, political and economic liberalism cannot be resolved. Either economic liberalism will dominant at the expense of social and political liberalism, or social and political liberalism will result on the imposition of socialism on capitalism.
This is happening in China, ironically, since China is not socially and economically liberal in the Western sense. But the Chinese government realizes that to stay in power it needs popular approval and adjust its policy based on public opinion, which it researches carefully. As a result the China government has the overwhelming approval of the populace, while the opposite is the case in the West.
However, it must also be noted that in the West, economic liberalism as laissez-faire is no longer the case, even though the principles are advocated. Rather, the reality now is neoliberalism, which is state capture by capital through institutional arrangement that class power is used to impose to its advantage. This is the basis issue facing the world today, since neoliberalism is joined at the hip with neo-imperialism and neocolonialism.
I credit Marxists and Marxians for calling attention to this. Most conventional economists are working within the paradigm of economic liberalism — spontaneous order as general equilibrium arising from rational maximization in markets that are shaped by market forces involving unrealistic assumptions.
Michael Roberts Blog — blogging from a marxist economist
MMT and Marxist monetary theory – a reply to Bill Mitchell by a man with no name
Michael Roberts
Michael Roberts Blog — blogging from a marxist economist
MMT and Marxist monetary theory – a reply to Bill Mitchell by a man with no name
Michael Roberts
16 comments:
If you don't address commodity production and its resultant effects, such as consumerism, y'all are fiddling while the Earth burns.
Diluted Marxism is a placebo.
Edward Bernays understood who we are, and that it was good for profit.
G��D: Owning Our Error, Accepting Our Fate (Dowd 2021 Oct)
I kind of feel for Michael Roberts. But then on the other hand I am not sure he knows what he is wishing for. As someone who has gotten many, many replies from Bill that are along the lines of 'Dear Jerry Brown- you are wrong', I am not so sure I wouldn't want to be anonymous once in a while when Bill thinks I am wrong.
And I think Michael is wrong at least about MMT saying "manipulating money, governments could solve unemployment and poverty." MMT says that currency issuer can offset private and foreign sector desires to save in the currency- at least that is my understanding. And MMT does not say that ability will necessarily solve poverty- just that it can solve unemployment in terms of that currency.
@ Jerry Brown
I think it likely that Bill understands Marx much better than Michael Roberts understands MMT, at least from what I have read of both in previous posts on these matters.
I doubt any economist knows both MMT and Marx as well as Bill and Peter Cooper from what I have seen so far. I don’t' think that Bill self-identifies as Marxists while it seems that Peter Cooper is much closer to that characterization.
So a debate with either Bill or Peter would turn out to be one-sided for lack of understanding of the details of MMT on the other side. It takes a considerable investment to understand Marx deeply and also MMT. Rare are those who have made this investment, from what I have seen.
Similarly, MMT economists understand conventional and heterodox economics much better than conventional and heterodox economists understand MMT. As a result, the debates (such as they are) have been one-sided so far for lack of understanding of MMT on the other side.
Perhaps with MMT getting traction now, this will change and economists will see it to be in their self-interest to get up to speed professionally wrt MMT lit instead of continuing to attack a straw man.
But blogs are not the best place to carry on such debates. Professional papers are the traditional venue.
If your objective is to end capitalism, MMT prescriptions are not the path to follow.
Jerry Brown,
MMT says that currency issuer can offset private and foreign sector desires to save in the currency- at least that is my understanding.
Not "save", "net save", i.e., saving in excess of investment. Peter Cooper (heteconomist) explains:
Having acknowledged that there are real limits to government deficits (it was never denied), MMT nevertheless makes clear that government deficits are the norm, not the exception. This does not mean that government deficits of any size are okay. They must be consistent with private-sector net-saving intentions. It simply means that ongoing government deficits of some size will be the appropriate policy under normal circumstances. The reason for this is that the non-government sector typically desires to net save. This means, as a matter of accounting, that the government must run deficits.
In aggregate:
Government Balance + Non-Government Balance = 0
This is an identity, true by definition. The financial balance of the non-government sector matches the government’s balance dollar for dollar. Non-government can only maintain a surplus (positive balance) if the government runs a deficit (negative balance). The financial wealth of non-government is nothing other than the accumulated deficits of the government sector.
For an open economy, such as an individual trading nation, the non-government sector can be disaggregated into the domestic private sector and foreign sector. As a matter of accounting:
Government Balance + Domestic Private Balance + Foreign Balance = 0
The majority of nations run current account deficits. For these nations, the foreign balance is positive and government deficits are required if non-government is to maintain a financial surplus. Ongoing government surpluses are only sustainable in a few small trade-surplus nations with current account surpluses sufficiently large to offset the net-saving intentions of domestic households and businesses.
Whenever the non-government sector net saves (maintains a surplus), it is spending less of the monetary unit than it earns. The result is unsold output and a signal to firms to cut back production unless the government fills the demand gap through deficit expenditure. By doing so, the government is in a position to ensure all output is sold at current prices and that the non-government sector satisfies its net saving desires. If, instead, the government allows the demand shortfall to persist by not injecting sufficient expenditure of its own, firms will respond by cutting back production. There will be a contraction in output and income, thwarting non-government net saving intentions. If the non-government sector responds by redoubling its efforts to net save, the result is a further shortfall in demand, further contraction of income (as well as tax revenue), more frustration of non-government saving plans, etc. There is no end to the process until either the non-government sector accepts a smaller net-saving position or the government accepts a bigger deficit.
If your objective is to end capitalism, MMT prescriptions are not the path to follow.
I view it from a broader perspective. So far, MMT policy prescriptions coming from MMT economists and proponents are circumscribed by the politically feasible under current conditions, and even then, neither party is as yet willing to commit to the package, largely since it is too far ahead of public understanding and few politicians want to get in front of the curve.
But as conditions change this will change, too. I think climate change may result in a sufficiently different mode of production as to open the door to MMT policy from the left to a greater role for government, that is, more "socialism," actually social democracy, because the public will demand effective action to deal with the crisis. Big changes in store down the line, or else.….
@ Ahmed
Yes, this is the crux of the MMT position and I have not yet seen a non-MMT economists that gets this.
This pinpoints the key weakness in Michael Roberts' view in his recent post.
Ahmed, I would say my statement is correct because it refers to the private sector, as a whole, as saving in terms of the currency, which of course implies your 'net saving' distinction. Which is also correct. Just because Bill is not here to say 'Dear Jerry Brown, you are wrong again' does not mean you need to attempt to fill in for him:)
Best Wishes,
Jerry
Jerry Brown,
Sorry, you're still not getting it. I often use simple examples in my mind, like an island economy, to understand these things. Here's how I think about it:
Say you have an economy that produces 100 dollars worth of total goods, consisting of 20 dollars worth of investment goods and 80 dollars worth of consumption goods. Now, say the non-government sector wants to save 20 dollars. Here, there is no problem because the saving exactly matches the investment, and that saving is in the currency without any problem.
Say instead that the non-government sector wants to save 25 dollars, i.e., only consume 75 dollars of consumption goods, leading to 5 dollars of excess inventory.
Because the saving-investment identity (S = I) always holds true, investment for the period will still be 25 dollars, 20 dollars of capital goods, and 5 dollars of excess inventory. That 5 dollars is the "net saving" that MMT refers to.
That excess inventory is the signal for businesses to cut back on production, and absent government spending to fill the gap, the economy enters a recession. Here the saving-investment identity balances by reduction in both output and incomes.
Tom, I am not an expert on Marx. But from what I think I know, I don't see him agreeing with say Mosler or Wray or Kelton about money being similar to a score keeping system for points at a football stadium. Bill Mitchell doesn't emphasize that aspect of money so much as some other MMTers, in my opinion. But I think it is a fairly important difference in perspective between MMT and what I think I know about how Marx considered money.
No Ahmed. The economy that produces $100 of total goods and spends $80 on consumption goods and $20 on investment goods is not saving $20 in terms of the currency. There is no overall private sector savings in terms of the currency assuming a balanced foreign sector and a balanced government sector.
http://bilbo.economicoutlook.net/blog/?p=35171#comments
Here Bill Mitchell tells me I am wrong about S=I and explains why. Maybe it will help.
Jerry Brown,
I read through all the comments and Bill doesn't mention the currency, but it was an interesting discussion all the same. If I may address a couple of points that you and others raised.
Jerry Brown says:
Or is it that S=I is not an identity, or at least not right away?
S always equal I, and it does so at every instant in time, and to the penny. A quote from Keynes' Collected Writings:
S = I at all rates of investment. Y either definable as C+S or as C+I. S and I were opposite facets of the same phenomenon they did not need a rate of interest to bring them into equilibrium for they were at all times and in all conditions in equilibrium. (CW XXVII, pp 388–9)
CharlesJ raises this point:
Further we know from the National Accounts of many countries that in practice S almost never equals I.
S always equals I but with trade, the identity balances at the global level, and again, it does so at all times.
In any event, and back to your comment, even with a balanced government sector, there is still that money sloshing around in the economy from previous government deficit spending. It is that money which allows saving in the currency. Not to mention private money creation.
@ Tom
What the ruling class has in mind has more to do with feudalism than socialism. You will own nothing, and you'll be happy. I'm not seeing a commitment to full employment by government. Wither MMT, hello UBI/price controls. As for addressing existential crises like climate change, the agenda is unclear. The objective may be to control consumption, or effect a culling of non-essential personnel.
Oooooo… Bill not a big fan of “the coin!” bs…
“ Things too stupid to even think about
1. The perennial US debt ceiling fiasco.
2. The calls for a trillion dollar coin in response to the stupid Republican antics about 1.”
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