A Critique of Crisis Theory

Three Books on Marxist Political Economy (Pt 6)

May 21, 2017

Shaikh’s theory of money

Shaikh deals with money in two chapters—one near the beginning of “Capitalism” and one near the end. The first is Chapter 5, “Exchange, Money, and Price.” The other is Chapter 15, “Modern Money and Inflation.” In this post, I will concentrate on Shaikh’s presentation in Chapter 5. In Chapter 15, Shaikh deals with what he terms “modern money.” I will deal with his presentation in this chapter when I deal with Shaikh’s theory of inflation crises that is developed in the last part of “Capitalism.”

In Chapter 5, Shaikh lists three functions of money—considerably fewer than Marx does. The three functions, according to Shaikh, are (1) money as a medium of pricing (p. 183), (2) money as a medium of circulation, and (3) money as a medium of safety. Shaikh deals with money’s function as a means of payment under its role as a means of circulation. The problem with doing this is that money’s role as a means of payment is by no means identical to its role as a means of circulation and should have been dealt with separately.

Anybody who has studied seriously the first three chapters of “Capital” Volume I will be struck by how radically improvised Shaikh’s presentation here is compared to that of Marx. It is in the first three chapters of “Capital” that Marx develops his theory of value, exchange value as the necessary form of value, and money as the highest form of exchange value. He does this before he deals with capital. Indeed, Marx had to, since the commodity and its independent value form, money, is absolutely vital to Marx’s whole analysis of capital.

Three Books on Marxist Political Economy (Pt 5)

April 23, 2017

Shaikh’s wrong theory of interest rates

“The interest rate is the price of finance,” Shaikh writes at the beginning of Chapter 10, “Competition, Finance, and Interest Rates.” Shaikh treats the rate of interest as fluctuating around the price of production of the “provision of finance.” Late in Chapter 10, Shaikh indicates he was confused on this subject in the 1970s and the early 1980s but brought to his current views by the Sraffrian-neo-Ricardian Italian economist Carlo Panico. Is this the correct approach to ascertaining what actually determines the rate(s) of interest? I believe it is not.

Do interest rates really fluctuate around a “price” of the provision of finance the way market prices fluctuate around prices of production? Strictly speaking, price is the value of one commodity measured in terms of the use value of the commodity that serves as the universal equivalent—money. According to this definition, interest rates are not prices at all.

It is true that we often use price in a looser sense. For example, we talk about the prices of securities that are in reality legal documents that entitle their owners to flows of income. Another example is the price of unimproved land whose owners hold titles to flows of ground rent. It would be absurd to talk about the price of production of unimproved land if only because unimproved land is a form of wealth produced by nature and not by human labor.

Some other ‘non-price’ prices

Another example of a price that is not a real price is the dollar “price” of gold. This very important economic variable is not really a price at all but instead measures the amount of gold that a dollar represents at any moment. Other examples of “non-price” prices are the “price” of one currency in terms of another—exchange rates—and the price of politicians.

Three Books on Marxist Political Economy (Pt 4)

March 27, 2017

The wave of reactionary racist economic nationalism represented by the British “Brexit” and election of Donald Trump to the U.S. presidency has drawn attention to the question of world trade. Most capitalist economists are supporters of “free trade.” So-called free-trade policies have been protected and encouraged by what this blog calls the “U.S. world empire”—and what the economists call “the international liberal order”—since 1945. These policies followed an era of intense economic nationalism among the imperialist countries that led to, among other outcomes, Hitler’s fascism and two world wars within a generation.

Bourgeois economists who support free trade—the majority in the imperialist countries—claim that international trade is governed by an economic law called “comparative advantage,” first proposed by the great English economist David Ricardo.

The “law” of comparative advantage makes two basic claims about world trade.

The first is that the less role capitalist nation-states and their governments play in international trade the more the international division of labor will maximize labor productivity.

The second is that regardless of the relative degree of capitalist development among capitalist nation states, all such states benefit equally if they engage in free trade. In terms of government policy, this means that regardless of their degree of capitalist development, the best policy is no protective tariffs, no industrial policies, and no interference in the movement of money from one capitalist country to another.

In contrast, economic nationalists in the imperialist countries both right and left, though they sometimes claim to have nothing against free trade, insist that it must be “fair trade.” For example, President Trump insists that since 1945 global trade has been increasingly unfair to the United States, leading to the collapse of much of U.S. basic industry. Trump promises to change this and wants more government intervention in international trade, such as border taxes and other tariffs to make sure that trade is “fair.” This will, the Trumpists claim, lead to re-industrialization of the United States and the return of good-paying industrial jobs.

Notice to readers

March 26, 2017

This month’s blog post will be delayed by one day owing to a scheduling conflict. Look for it Monday, March 27, around mid-day California time.

Editor

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Three Books on Marxist Political Economy (Pt 3)

February 26, 2017

The election of Donald Trump as the 45th president of the United States, combined with the rise of similar right-wing demagogues in Europe, has prompted a discussion about the cause of the decline in the number of relatively high-wage, “middle-class,” unionized industrial jobs in the imperialist core countries. One view blames globalization and bad trade deals. The European Union, successor to the (West) European Common Market of the 1960s; the North American Free Trade Area; and the now aborted Trans Pacific Partnership have gotten much of the blame for the long-term jobs crisis.

This position gets support not only from President Trump and his right-hand man Steve Bannon and their European counterparts on the far right but also much of the trade-union leadership and the “progressive” and even socialist left. The solution to the problems caused by disappearing high-paid jobs in industry, according to economic nationalists of both right and left, is to retreat from the global market back into the safe cocoon of the nation-state. Economic nationalists insist that to the extent that world trade cannot be entirely abandoned, trade deals must be renegotiated to safeguard the jobs of “our workers.”

Most professional economists have a completely different explanation for the jobs crisis. They argue that changes in technology, especially the rapid growth of artificial intelligence in general and machine-learning in particular, is making human labor increasingly unnecessary in both industrial production and the service sector. Last year—though it now seems like centuries ago—when I was talking with one of this blog’s editors about possible new topics for future blogs, a suggestion was made that I take up a warning by the famous British physicist Stephan Hawking that recent gains in artificial intelligence will create a massive jobs crisis. This is a good place to examine some of the subject matter that might have been in that blog post if Brexit and Donald Trump had been defeated as expected and the first months of the Hillary Clinton administration had turned out to be a slow news period.

It is a fact that over the last 40 years computers and computer-controlled machines—robots—have increasingly ousted workers from factories and mines. The growth of artificial intelligence and machine learning is giving the “workers of the brain” a run for their money as well. This has already happened big time on Wall Street, where specially programmed computers have largely replaced humans on the trading floors of the big Wall Street banks. No human trader can possibly keep up with computers that can run a complex algorithm and execute trades based on the results of the computation in a fraction of a second.

Wall Street traders are not the only workers of the brain whose jobs are endangered by the further development of AI. Among these workers are the computer programmers themselves. According to an article by Matt Reynolds that appeared in the February 22, 2017, edition of the New Scientist, Microsoft and Cambridge University in the UK have developed a program that can write simple computer programs.

Trump and the Resurgence of Imperialist Economic Nationalism

January 30, 2017

As the inauguration of Donald Trump as U.S. president approached, a political uproar unfolded in Washington that was more fury than substance. A little more than a week before Trump took the oath of office, the on-line site BuzzFeed published an unverified 35-page document by a “former” member of MI6, Britain’s counterpart of the CIA, on Trump’s alleged relationship with the Russian government and its intelligence agencies. Reportedly, the document was originally created on behalf of anti-Trump—Republicans eager to find some dirt that could be used to stop the billionaire political adventurer in the Republican primaries.

The text’s most sensational part was the claim that Russian intelligence obtained documentation of Trump’s perverted sexual tastes while he was staying at the Ritz-Carleton hotel during a visit to the Russian capital in 2013. It is well documented by many other sources that Trump has abused women throughout his adult life. So even if the claims of the document are taken at face value—they would, to tell the truth, be rather tame stuff. For the record, President Trump has strongly denied the allegations, as has the Russian government.

Far more importantly, the document claims that, in exchange for the help of Russian intelligence obtaining and distributing through Wikileaks damning evidence about the Hillary Clinton presidential campaign, Trump’s business organizations passed information about the activities of “Russian oligarchs” in the West back to Russian intelligence. If true, that would mean that Trump engaged in activities that could leave him open to charges of spying for a foreign power, namely Russia, an impeachable offence. Could this form the basis of bi-partisan—”Party of Order“-sponsored—articles of impeachment against Donald Trump in the not too distant future? Stay tuned on that one.

Prospects for the Economy Under Trump

January 1, 2017

This article will come in two parts. This month, I examine policies of the Federal Reserve and Trump’s domestic policies. Next month, I will end this series with an examination of Trump’s global economic policies.

The Federal Reserve and Donald Trump

On December 14, 2016, the Federal Reserve Open Market Committee announced that it had finally decided to raise the federal funds rate—the rate that commercial banks, not the Fed itself, charge each other for overnight loans—by a quarter of one percent. Instead of targeting a rate of 0.25 to 0.50 percent like it did between December 2015 and December 2016, its new target is 0.50 to 0.75 percent.

Since Trump’s victory on November 8, long-term interest rates have risen sharply. This combined with the decision of the Fed to finally nudge up the fed funds rate indicates that the money market has tightened since Trump’s election. In the course of the industrial cycle, once the money market starts to tighten it is only a matter of time before recession arrives. The recession marks the end of one industrial cycle and the beginning of the next.

As it became increasingly likely that Trump could actually win the Republican nomination, the Fed put on hold its earlier plans to raise the fed funds rate multiple times in the course of 2016. The normal practice is for the Federal Reserve System to raise the fed funds rate repeatedly in the later stages of the industrial cycle. Indeed, this is central banking 101. These policies are designed to hold in check credit-fueled “over-trading” (overproduction), as well as stock market, land and primary-commodity speculation that can end in a crash with nasty consequences.

If the central bank resists raising interest rates too long by flooding the banking system with newly created currency, this leads sooner or later to a run on the currency, which is what happened in the 1970s. The result back then was stagflation and deep recessions with interest rates eventually rising into the double digits, which effectively wiped out the profit of enterprise—defined as the difference between the total profit and the rate of interest. At the end of the stagflation in the early 1980s came the explosion of credit, sometimes called “financialization,” the aftereffects of which are still with us today.

Under the present dollar-centered international monetary system, the repeated failure of the Federal Reserve System to push up interest rates would lead to the collapse of the U.S. dollar and the dollar system. The inevitable result would be a financial crash and thus the military and political crash of the U.S. world empire, which has held the capitalist world together since 1945.

In this cycle, however, the Federal Reserve waited more than eight years after the outbreak of the crisis in August 2007 before it began to push up the federal funds rate. The reason for the prolonged delay is that the current U.S. economic expansion, which began in 2009—representing the rising phase of the current industrial cycle—has been the slowest on record.

During this extraordinarily feeble expansion, the U.S. GDP has grown, with some fluctuations, at a rate of only about 2 percent a year. This performance contrasts sharply with the double-digit U.S. GDP rates of growth that occurred during the expansion of 1933-1937 and again after the severe but brief recession of 1937-1938 during the Great Depression. Far more than in the 1930s, the current era has been marked by “secular stagnation” in the U.S. as well as Europe and Japan.

Beginning with the panic that broke out with the failure of the giant Lehman Brothers investment bank in September 2008, the Federal Reserve engineered an explosion in the dollar-denominated monetary base designed to stave off a new super-crisis that could have been much worse than the one in 1929-1933. This effort succeeded in preventing the crisis from reaching the extremes the earlier super-crisis did in most countries—but not all. For example, the crisis/depression that began in the U.S. in 2007 has been far worse in Greece than the crisis of the 1930s was in that country. But even in countries where a full-scale repeat of the 1930s Depression was avoided, the post-crisis stagnation has been far more stubborn than anything seen in the 1930s.

Donald Trump, the New Political Chief of Capitalist Society

December 4, 2016

Donald J. Trump, the 70-year-old New York billionaire, real-estate magnate, owner of casinos and golf courses, and former clownish reality star, is the new political chief of the United States and leader of the “free world” (as the U.S. world empire likes to call itself).

Trump was actually defeated by a margin of 2.3 million votes in the election by Hillary Clinton. However, he won an overwhelming victory in the electoral college. The electoral college is itself an undemocratic hangover from when the plantation economy dependent on the slave labor of kidnapped Africans and their descendants dominated the southern U.S. This would be as though the Labour Party in Britain won a small but definite majority in the House of Commons but the House of Lords and the Crown—both survivors of the time when a feudal economy dominated what is now Great Britain—combined to install a prime minister from the Tory Party.

Hail to the Chief!

The big capitalists know full well that, whether or not they like a particular “leader of the free world,” they have only one such leader at a time. Immediately after the proclamation of Trump as “president-elect,” outgoing President Barack Obama wished Trump success. He explained that, whatever differences there might be between the first African American to be elected to the presidency and his right-wing racist successor, “we”—the ruling capitalist class—are “playing on the same team.”

Obama is correct. Hillary Clinton after a lag of a few hours—reports said that she had not even considered the possibility that she would lose and had not prepared a concession speech—delivered a meek statement along the same lines.

Ironically, Trump had declared in the weeks leading up to the election that “the system is rigged” and he might not accept the results. This indicated that Trump himself did not actually expect to win. Whether Trump would have recognized a Clinton victory as legitimate and indicated his support of a President Hillary Clinton will never be known.

The selection of Senator Jeff Sessions of Alabama for U.S. attorney-general indicates that the Trump administration will be the most racist administration since at least the days of Woodrow Wilson. Ronald Reagan nominated Sessions for a federal judgeship, but his racism was too obvious and he was rejected by the Senate. Sessions called African American employees of the Justice Department “boy”—the term of address used by white slaveholders when addressing their African male slaves. Later, in the Jim Crow era, white bosses, officialdom and racist whites would address African American men as “boy.”

Sessions once joked that he had no arguments with the Ku Klux Klan until he found out that Klan members used marijuana. The point of this joke is that Sessions, though he disapproves of weed, has no disagreements with the Klan on the question of race. This joke is beyond offensive and in a decent society would disqualify him for any public office, let alone the position as chief law-enforcement officer. The Sessions nomination gives the lie to any claim that the president-elect is not a racist.

Trump appointed Steve Bannon as White House chief advisor and strategist. Bannon, the former chief executive officer of Breitbart “News,” a far-right website that has provided a platform for the neo-Nazi-ridden alt-right movement, has sent chills down the spines of all American who do not fit the white-nationalist definition of European Americans. As defined by neo-Nazis—or white nationalists, as they like to call themselves today—non-European Americans include the African American community; Latinos, especially but not only the Mexican community; Native Americans; the entire Muslim community and, yes, that other group not considered to be European American, the Jewish community.

Not so long ago, the complacent mainstream leaders of the U.S. Jewish community, who are all Zionists, claimed that anti-Semitism today came from the left. According to these misleaders, anti-Semitism showed itself in the form of the Boycott and Divestment and Black Lives Matter movements because the leaders of these movements expressed solidarity with the struggle of the Palestinian people against Israeli apartheid.

But then a funny thing happened. The old anti-Semitism of “the right”—that is, the real thing—is now raising its ugly head not only in far-off Poland, Hungary and Hitler’s homeland of Austria but right here in the U.S. Recently, the Anti-Defamation League denounced the attacks on Muslims. This is a welcome development though it would be nice if they extended their defense of Muslims to Arab Muslims who are native to Palestine. This illustrates the fact that the state of Israel and the entire Zionist movement are actually barriers in the struggle against fascism and the real anti-Semitism that inevitably accompanies it.

Three Books on Marxist Political Economy (Pt. 2)

November 6, 2016

Profit of enterprise and monopoly profit

As we saw last month, Marx’s prices of production are not identical to the marginal cost = equilibrium prices of “orthodox” bourgeois microeconomics. The biggest difference is that prices of production include not only the cost price and interest on capital but also the profit of enterprise. Modern bourgeois microeconomic orthodoxy holds that in “general equilibrium” any profit in excess of interest will be eliminated by “perfect competition.”

In contrast, Marx—and the classical economists before him—did not believe that competition had any tendency to eliminate the profit of enterprise. Instead, they believed that in addition to interest, there is an additional profit of enterprise that is appropriated by the commercial and industrial capitalists. Profit of enterprise is defined as total profit minus interest. The profit of enterprise must not be confused with monopoly profits. The only monopoly necessary for the profit of enterprise is the monopoly of the means of production by the capitalist class.

True monopoly profits do exist. But within the classical-Marxist tradition, monopoly profit is an addition to the profit of enterprise. Anwar Shaikh affirms that monopoly profits exist but he has little to say about them in his “Capitalism.” Instead, Shaikh is interested in “real competition,” which quickly eliminates any profit beyond the profit of enterprise.

Shaikh’s failure to analyze monopoly profit is in full accord with his rejection of the Monthly Review and heterodox post-Keynesian schools, which often treat any profit, or at least any profit beyond interest, as monopoly profit.

Shaikh’s lumping together of these two quite different theories of a monopoly capitalist stage—the Hilferding-Lenin and the “Monopoly Capital” theories—is in my opinion a legitimate criticism of Shaikh’s “Capitalism” and his “fundamentalist school” in general. In “Monopoly Capital,” Paul Baran and Paul Sweezy were quite clear that they were not simply repeating or writing yet another popularization of the Hilferding-Lenin theory of monopoly capitalism. They found that theory inadequate and developed another, quite different theory of monopoly capitalism.

I believe that Shaikh is correct in seeing the influence of the Leon Walras-inspired theory of perfect competition in “Monopoly Capital” and other theories of modern capitalism influenced or inspired by Baran and Sweezy’s “Monopoly Capital.”

Three Books on Marxist Political Economy

October 9, 2016

The year 2016 will be remembered for an exceptionally toxic U.S. election cycle. More positively, it will also be remembered for a series of new books on Marxist political economy. Among these, two stand out. Oxford University Press published “Capitalism, Competition and Crises” by Professor Anwar Shaikh of the New School. Monthly Review Press published John Smith’s “Imperialism in the Twenty-First Century.” Smith, unlike Shaikh, has spent most of his adult life as a political activist and trade unionist in Britain.

This year also marks the 50th anniversary of the publication of Paul Baran and Paul Sweezy’s “Monopoly Capital.” Monthly Review writers, led by editor John Bellamy Foster, treat this book as a modern-day classic playing the role for monopoly capitalism that Karl Marx’s “Capital” played for classical competitive capitalism. Monthly Review magazine devoted its special two-month summer edition to marking the anniversary.

Shaikh’s “Capitalism,” published 50 years after “Monopoly Capital,” can be viewed, at least in part, as the “anti-Monopoly Capital.” In sharp contrast to the Monthly Review school, Shaikh has held throughout his career that the basic laws of motion governing today’s capitalist economy are the same as those that governed the capitalism of Adam Smith, David Ricardo and Marx. This is what Shaikh attempts to prove in his “Capitalism” and what Baran and Sweezy denied. We can expect that Shaikh’s “Capitalism” and Baran and Sweezy’s “Monopoly Capital” will be dueling it out in the years to come.

Monopoly stage of capitalism, reality or myth?

Shaikh rejects the idea that there is a monopoly stage of capitalism that succeeded an earlier stage of competitive capitalism. He rejects Lenin’s theory of imperialism, which Lenin summed up as the monopoly stage of capitalism. According to Shaikh, the basic mistake advocates of this view make is to confuse real competition with “perfect competition.”

Real competition, according to Shaikh, is what exists in real-world capitalism. This was the competition Adam Smith, Malthus, Ricardo and Marx meant when they wrote about capitalist “free competition.” The concept of perfect competition that according to Shaikh is taught in university microeconomic courses is a fiction created by post-classical bourgeois marginalist economists. Nothing, according to him, even approximating perfect competition ever existed or could have existed during any stage in the development of capitalist production.

In this month’s post, I will take another look at Baran and Sweezy’s “Monopoly Capital” and contrast it with Shaikh’s “Capitalism.” I will hold off on reviewing John Smith’s book, since his book is in the tradition of Lenin’s “Imperialism” published exactly 100 years ago, which Shaikh considers severely flawed. There are other important books on Marxist economics that have recently been published, and I hope to get to them next year, which marks the 100th anniversary of the Russian Revolution.

A Critique of Crisis Theory

Three Books on Marxist Political Economy (Pt 6)

Three Books on Marxist Political Economy (Pt 5)

Three Books on Marxist Political Economy (Pt 4)

Notice to readers

Three Books on Marxist Political Economy (Pt 3)

Trump and the Resurgence of Imperialist Economic Nationalism

Prospects for the Economy Under Trump

Donald Trump, the New Political Chief of Capitalist Society

Three Books on Marxist Political Economy (Pt. 2)

Three Books on Marxist Political Economy

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