Deflation - a reply to Nick's interpretation of Marx

Jurriaan Bendien bendien at tomaatnet.nl
Sun Jul 13 11:33:17 MDT 2003


Hi Nick,

YOU:

"Jurriaan, you have some interesting and important things to say, "

ME:

Thanks ! I am flattered.

YOU:

"nonetheless I disagreed with much of your post."

ME:

Melvin P. would have you killed or imprisoned [sic.], or at least forcibly
re-educated.


YOU:

"Unfortunately I don't have time to tackle
the specific points, but neither did you engage with
my simple remarks, "

ME:

Well I did engage with them to some extent, I made some simple comments
about some of your simple comments, to show that they were simply
wrongheaded and too simple.

YOU:

"but instead invoked a miserable caricature of "Neanderthal and
Fundamentalist Marxists": in short, you created an army of strawmen."

ME:

This is not a caricature, it is a genuine description of how you and other
self-styled Marxists often argue. I think you are on strong Marxian ground
if you say that what happens to the relations of production, what Marx
refers to as the sphere of production, decisively determines the rest of the
economic edifice. This is precisely Marx's own contention, which is why he
proposes to analyse the "capitalist mode of production" in his book,
disregarding such finer points in his analysis as to why Mr Moneybags cannot
sell his last ten thousand tons of steel. But it is a big leap from there,
to simply disregarding distributional questions and implying that they have
no effect, that you can simply disregard credit, debt and  monetary
conditions, the distribution of incomes among social classes, and so on, and
just assert a few points about problems at the level of production, implying
that (al of the) surplus-value produced, will automatically be realised. My
objection to vulgar fundamentalist critiques of underconsumptionism is
precisely that the fundamentalists deny the very idea, that in the real
world realisation problems can occur, that a lack of aggregate demand can
occur, and that this can be a semi-autonomous factor in promoting crises,
depending on the specific context. Even so, you imply distributional
problems yourself, by referring to a disproportionality of
"underaccumulation here, and overaccumulation there".

YOU:

"Nothing I wrote suggests any belief in "Say's Law".
By trivialising your interlocutors you devalue the
importance of your own message, and that's a pity."

ME:

Your original argument was that explicitly "Deflation is NOT a realisation
problem determined by "underconsumption" or ANY OTHER ISSUE arising at the
level of circulation". In that case, you are asserting that monetary and
credit conditions, the specific distribution of incomes, and foreign trade
have zero effect on the general price level; and no reputable Marxist
economists would follow you in that hypothesis, and it does in fact imply a
commitment to Say's Law. You then argue that "Deflation appears because (due
to the low level of social productivity) it is unprofitable to employ more
people, and hence less effective demand appears in the market, while great
pools of idle labour and moribund capital exist everywhere." But now you
have assumed precisely what you need to explain, disregarding strong
productivity growth in the US economy in the 1990s, if measured by
conventional indicators. Moreover, you said previously "Since the dollar was
delinked and competitively devalued by Nixon, deflationary policies have
been used by these national capitals trying to outcompete US capitalism by
raising domestic productivity." The suggestion you make here, is that
deflation was the result of a deliberate government macroeconomic policy,
contradicting your "unprofitability" argument about the cause of deflation,
as well as your previous rejection of the idea that deflation could be
determined by "any issue arising at the level of circulation". In fact I
cannot think of any professional American Marxist economist who would agree
with you that, from the Nixon era, the dollar was "competitively valued",
whatever that means. Meantime you have completely ignored my premise that,
if you want to raise the general price level, you would have to somehow
crank up buying power, and my query as to how this might occur, or if it
could occur. I said explicitly that I do not feel able to make a good
objective assesment of that, in the context of the US economy, but I said
THAT is what the question is about, that is what needs to be answered.
Assuming a gold-money standard and strict credit conditions, productivity
growth will naturally lead to a general fall in the price level in
capitalist development eventually, that is my argument. But, of course,
governments can intervene in monetary and credit policy and all sorts of
other ways, to prevent this from happening, or at least reducing the effect.
And they have done so, with Keynesian policies, since the 1930s, but in the
1970s this led to general stagflation anyhow. This in turn led to attempts
to restore price stability, but the very way in which this is done, now
causes a fall in the general price level. I think you can explain this in
terms of the labour theory of value, but you are not really contributing
much to the explanation at all, except insisting that I am wrong without
giving cogent reasons why.

YOU:

"I'd also rather steer clear of discussing Marxist
crisis-theory, because it often ends up in useless
value-primers that are patronising and waste time."

ME:

But, dear fellow, why then try to criticise me, and suggest I am wrong,
without giving any credible argument whatever, and just asserting a few
platitudes yourself ? Why patronise me in this way then ?

YOU:

"That said, you can't pretend that there's an identity
between the overproduction of commodities and the
overproduction of capital, "because commodities are
just a form that capital takes".  In fact the
overproduction of commodities can be a form of
appearance of the underproduction of capital."

ME:

I did not say they were identical, what I said is that they imply each
other, suggesting that we need to get beyond generalities and platitudes. Of
course, "the overproduction of commodities can be a form of appearance of
the underproduction of capital", insofar as e.g. industries in the capital
goods sectors are unable to buy the output of other industries in the same
sector, but that is not what I was referring to, and its begs the question
of why this occurs; moreover the underproduction of capital implies
precisely a lack of effective demand, i.e. insufficient capital exists to
purchase output, at least in the capital goods sector. In the capitalist
economy, there is always overinvestment here, and underinvestment there, to
some extent, there is lack of demand here, and unsatisfied demand there to
some extent. However, what Marx is talking about is the process whereby
overaccumulation and overproduction spread from a few sectors to the economy
as a whole, affecting the majority of producers and consumers, and what the
causes and dynamics of that are.

YOU:

"I think we should begin by assuming that in Marx's theory of
crisis/equilibrium he was talking about overproduction of capital".

ME:

But this is meaningless without further specification. Marx does suggest
that a situation of excess capital is characteristic for capitalist crises
(capital can no longer be invested at the previously ruling rate of profit,
and ultimately the total mass of surplus-value stagnates or declines), but
now we have to spell out exactly what that means, and what causes it, rather
than sloganise. In Marx's theory, the discussion of the conditions of
economic equilibrium and discussion of the conditions generating crises are
not identical, in fact he doesn't even use the term "equilibrium" as far as
I know. The term "equilibrium" is used in neoclassical economics to indicate
a balance between supply and demand, but in fact that strictly speaking
never exists, except in theory, i.e. except in the sense of a relative,
dynamic equilibrium where there is steady, uninterrupted growth in all
economic sectors (be it at different rates of growth). Marx investigates in
an idealised way, how it is possible that the capitalist economy can
internally generate the conditions for its own social reproduction, through
the interaction of economic sectors (simple reproduction and expanded
reproduction), and how, therefore, capital can independently determine and
regulate the whole economic process of a society, but in so doing, he
assumes that output is sold, and abstracts from realisation problems, in
order to examine intersectoral balances on the basis of value theory. He
wants to explain "what drives market prices" ultimately, and in order to do
that, he has to get away from vulgar explanations of prices in terms of
other prices. Neoliberal economists assume, that a market economy will
naturally gravitate towards economic equilibrium such that supply and demand
coincide, but they cannot explain consistently how that would necessarily
occur, and why it fails to occur.
All they can say in the latter case is that prices were too high here, and
too low there, there was some extra-economic factor disturbing the market.
But this is not what concerns Marx, he is concerned with the very meaning of
equilibrium, the conditions for it and the forces promoting or hindering it,
and for that purpose of analysis he in fact initially just assumes that
wages are paid and output is sold. Marx will ask, "if supply and demand
coincide, what then determines the price level, and what determines economic
growth, the conditions of economic balance between sectors, how are
different rates of growth adjusted to each other ?".

For the neoclassical economists, an economic crisis is always due to
extraneous forces interfering with the natural tendency of markets to
gravitate towards equilibrating supply and demand, and ensuring economic
balance. Indeed, markets are viewed as the very means of equilibration. It
follows therefore, that the solution to economic problems is to remove all
impediments to the efficient operation of markets, because then equilibrium
will result. Conversely, disequilibrium is the result of extra-economic
factors interfering with the market.  For Marx however, the crisis is
system-immanent, i.e. it is generated by the operation of markets
themselves, resulting is spasmodic economic growth. In essence, you have
crises, because you have capitalism. To explain this, you cannot assume the
natural tendency of markets to gravitate towards equilibrium, rather you
have to show how, over a period of time, the same forces which promote
balanced growth in one phase, culminate in the breakdown of balanced growth
in the next phase. Otherwise you have failed to explain the empirically
observable succession of booms and slumps which characterise capitalist
development in terms of the operation of the capitalist system itself. In so
doing, you have to do two things: (1) you have to view the capitalist mode
of production as a "contradictory unity of production and circulation", as I
said, following Marx's own expression, rather than just production without
circulation and distribution, and (2) you have to distinguish between the
root causes, the appearance forms and the specific antecedents of slumps and
recessions, taking into account the specific "accumulation regime" operated
in a specific historical period, national peculiarities and so on. Marx does
not offer any elaborated crisis theory himself, beyond a few leads, such as
that the system-immanent tendency is for the rate of profit to decline
through a number of successive cycles of business expansion. But in fact, he
says explicitly that the capitalist crisis is an expression of "all the
contradictions of bourgeois economy" and that the ultimate problem is "the
restricted consumption of the masses". In order to investigate that
systematically, we must distinguish at least between the possibility, the
necessity, the periodicity, and the specific appearance-form of crises, but
if you do not even understand, that the "possibility" of crises inheres in
the very exchange of commodities for money as such, and are committed to
Say's Law, then you are not going to go anywhere fast with your explanation.

YOU:

"Anyhow, it's pointless to short the breeze about this
stuff in the near-absence of facts etc.  There is a
powerful argument from both value theory and empirical
analysis to show that there is a desperate capital
shortage or famine at the heart of the world crisis."

ME:

But again you are engaging in rhetorical sleight of hand - what is that
powerful argument then ? Yes, there is capital shortage and famine in poor
countries, namely workers and peasants do not have any capital, and do
starve. Nevertheless the US government is happy to spend a trillion on the
military, and you do not do that sort of thing if there is a "capital
shortage". To the contrary, you do it to protect the vast wealth which makes
the lives of the elites so happy and pleasant. In your own phrase, there is
excess capital here, and capital shortage there, but you have to be very
clear about what "here" refers to and what ""there" refers to, and make a
class analysis of that. Already in the 1960s, Paul Baran showed that the
problem of underdevelopment in third world countries could not really be
attributed to "capital shortage", the problem was rather that the indigenous
bourgeoisies failed to invest in a cumulative industrialisation strategy,
because they had little interest in doing so, and to an extent were
prevented from doing so by the West. This is discussed already at length by
Ernest Mandel in his essay "Primitive accumulation and the industrialisation
of the Third World" (1967) which examines the economic meaning of
imperialism in the light of Marx's own theory - I have yet to publish my
English translation of it somewhere. Mandel was at that time critical of
Baran's notion of "surplus" but, at least Baran could understand what the
problem was, and make an empirical analysis, instead of fomenting
Marxist-Leninist rhetoric or waffling about "globalisation".

YOU:

" Attempts to base Marxism on theories of overproduction have failed, IMHO,
from the time of Hilferding and Luxemburg, while great thinkers like Ernest
Mandel and Paul Sweezy did not understand overproduction."

ME:

This is a big claim, which requires substantiation, especially in the light
of such facts as that the West dumps surplus food products in Africa and
that within the US economy itself, the capacity utilisation rate is running
at 75 percent, in other words a quarter of installed productive capacity is
not even being used, according to the Federal Reserve Board. Even so, nobody
"bases Marxism on overproduction", this is meaningless. My claim is that the
productivity of labour and the resources available in the world today is
sufficient to give everybody on the planet a decent life, but that
capitalist market economy is to a very large extent an obstacle to this
occurring, and prevents this from occurring. Capitalist development does
indeed develop the productive forces, but this development is always unequal
development in time and space, and this assumes ever more extreme forms,
resulting precisely in the "underconsumption of the masses" (see the post by
Jim Devine on the latest Human Development Report of the United Nations on
PEN-L).

YOU:

"Theories which ignore the reality of capital famine
also cannot relate and interconnect with the problem
of energy crisis and fundamental unsustainability.  As
Henryk Grossmann pointed out, there is a simultaneous
process of under-accumulation and over-accumulation of
capital.  This process is endemic and visible in every
sphere of production, linking together the materiality
of the world with the process of social reproduction
under capitalism.  Only a higher rate of exploitation
and accumulation would have overcome the latent
overproduction of unproductive capital, and this
longstanding under-production of surplus-value
explains the inability to transform the technical
composition of capital and leapfrog bottlenecks.  In
this light I strongly disagree with your
techno-optimism."

ME:

This is just more vague rhetoric, I am sorry. All the available empirical
evidence suggests the rate of surplus-value increased almost everywhere in
the OECD countries through the 1990s, and average profitability increased as
well, although we are still not back to the level of the 1960s. It is
precisely the gigantic increases in productivity within the "productive"
sector, and its domination by a few large corporations, which permits a mass
of capital and labour to transfer to unproductive areas. It is just,
overall, increasingly more profitable, relatively speaking, to invest in
areas other than in the expansion of material production, that is all. This
is a condition of permanent excess capital, but this can go hand in hand
with mass starvation quite easily, it is just a question of who happens to
own that capital, and what it is used for. According to Marx, this is a
system-immanent result of the capitalist system, and that is what you have
to explain, in terms of the interests of social classes.

YOU:

"In any case, it is not just a matter of there being no
political will to implement Keynesian policies based
on accepting a need for more social justice or
restoring profitability.  We can't put things down to
wilful perversity.  There are more fundamental
reasons: the emergence of radical constraints blocking
the accumulation process.  If enlightened Keynesian
policies were applied on a global scale and with the
intention of uplifting the global economy and creating
new prosperity and stimulated growth in the global
South, the only possible result would be a still more
serious inflationary slump, and where would you find
the necessary resources, energy and additional
ecosphere to externalise the costs of this mass
consumption (eg additional GHGs)?"

ME:

This is just a speculation of yours, you fail to see the problem I refer to,
which is that the bourgeoisie has zero interest in doing anything about the
fall in the general price level, except insofar as it erodes profitability
further. And it will erode profits further, but you as a self-proclaimed
paleo-Marxist are not in a position to understand why, or how this
phenomenon could lead to a renewed bout of protectionism. Why do you think
that Bush is beefing up the state apparatus in the US more, and regulating
the US economy more and more, despite all the rhetoric about free trade ?
Because the US elites want free trade where it suits them, and protectionism
where it suits them, they follow its national interests in that sense, based
on productivity advantage and technological monopoly. But in reality, this
is a highly contradictory project, fomenting divisions within the
bourgeoisie, and if you explore that further, you are able to predict the
future political implications much better, and can orient yourself much
better politically. But the way you are going, you might as well just stick
to saying that "there are economic crises because there is capitalism",
which is a perfectly acceptable socialist argument, even if it is something
of a Wittgensteinian tautology.

In general, what you want to say is that I am wrong in the things I say, but
you do not give any cogent argument for it. When I explain why your argument
is not cogent and indeed simplistic, you say "well, you are wrong, but I am
not going to discuss it anyway", taking the easy way out. But this is a
rather useless method of discussion, and the reader may be forgiven for
getting bored with all this. I am perfectly prepared to admit I am wrong, if
you can prove me wrong, in which case I learn something new. But if you just
assert that I am wrong, and offer a few platitudes and generalities, then
nobody learns anything much and the quality of discussion declines. I think
that at least you should do me the honour, if you wish to criticise me, of
providing a cogent argument, rather than generalities and platitudes in a
mood of "I don't really care about the discussion anyway, I just want to say
you are wrong."

Jurriaan







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