MMT, Minsky, Marx and the money fetish

Recently the former deputy governor at the Bank of Japan Kikuo Iwata argued that Japan must ramp up fiscal spending with any increased public sector debt bankrolled by the central bank.  This ex-governor seems to have adopted Modern Monetary Theory (MMT), or at least a version of Keynesian-style deficit spending as a ‘radical’ (or is it desperate?) answer to the continued failure of the Japanese economy to grow anywhere near its pre-global crash rate.

The very latest data on the Japanese economy make dismal reading.  The best measure of activity in manufacturing, the Nikkei manufacturing PMI, declined to 48.5 in February 2019, the lowest reading since June 2016, as both output and new orders declined at faster rates.  Meanwhile, business confidence weakened for the ninth straight month.  In Q4 2018, Japan’s national output stagnated.  There has been zero growth compared to the end of 2017. That compares with average annual growth of 2% since the 1980s.

Iwata was originally the architect of the BOJ’s massive bond-buying programme dubbed “quantitative and qualitative easing” (QQE).  This was supposed to boost the economy through a massive injection of money supply.  But although the Japanese government continually ran annual government budget deficits, it was to no avail in reviving nominal GDP growth or real household incomes.

Japan’s per capita GDP has been rising, but that’s only because the population is declining and the workforce too.  Personal disposable income has not risen as fast as the economy as a whole in many years—at 1 percentage point less than average GNP growth in the late 1980s.  Japan may have ‘full employment’ but the percentage of the workforce employed on a temporary or part-time basis is up from 19% in 1996 to 34.5% in 2009, together with an increase in the number of Japanese living in poverty.  According to the OECD, the percentage of people in Japan living in relative poverty (defined as an income that is less than 50% of the median) from 12% of the total population in the mid-1980s to 15.3% in the 2000s.

Iwata’s answer to Japan’s ‘secular stagnation’ is to continue with government deficits and spending, but this time financed by just printing money, not issuing bonds. “Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result,” That’s the only remaining policy option because “the BOJ’s current policy does not have a mechanism to heighten inflation expectations. We need a mechanism where money flows out to the economy directly and permanently.” BoJ bond purchases are just not working, because the banks are hoarding the cash in deposits and reserves and not lending.  They must be by-passed, says Iwata.

This proposal resembles the idea of “helicopter money” – a policy where the central bank directly finances government spending by underwriting bonds. Iwata’s solution to low growth and weak real incomes is just one more variant of the idea that demand must be stimulated to get a capitalist economy going, in this case by just printing more money.

Another variant now in the offing is to create a cashless economy.  You see, people keep hoarding their cash (under the mattress) and not spending while small companies get paid in cash and then hide it from their declared profits by hoarding.  So central banks and governments, in the world of digital and crypto-currencies, have now come up with the idea of abolishing or devaluing cash in favour of digital transactions.

The latest version of this comes from the IMF.  Having tried quantitative easing, as in Japan and elsewhere, and then ‘negative interest rates’ (ie people get paid to borrow money) to boost economies, the idea now is devalue cash.  This is how it goes: “In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.  One option to break through the zero lower bound would be to phase out cash”  How? Make cash as costly as bank deposits with negative interest rates, thereby making deeply negative interest rates feasible while preserving the role of cash.

The proposal is for a central bank to divide the monetary base into two separate local currencies—cash and electronic money (e-money). E-money would be issued only electronically and would pay the policy rate of interest, and cash would have an exchange rate—the conversion rate—against e-money. Shops would start advertising prices in e-money and cash separately, just as shops in some small open economies already advertise prices both in domestic and in bordering foreign currencies. Cash would thereby be losing value both in terms of goods and in terms of e-money, and there would be no benefit to holding cash relative to bank deposits. “This dual local currency system would allow the central bank to implement as negative an interest rate as necessary for countering a recession, without triggering any large-scale substitutions into cash.”

This IMF idea comes hard on an actual attempt by a government to ‘devalue’ cash.  Two years ago, the Indian government under Modi overnight abolished high-denomination banknotes. The government claimed the aim was to flush out ill-gotten gains by rich Indians hiding their earnings in cash to avoid tax.  But it was the Hindu poor, in the rural areas particularly, who were most hit by this ‘demonetisation’. Two-thirds of Indian workers are employed in small businesses with less than ten workers – most are paid on a casual basis and in cash rupees The demonetisation was supposed to attack corruption and tax evasion, but it seems to have had little effect on that.  Indeed, lots of rich Indians made ‘private arrangements’ to obtain new bank notes and avoid having to declare monies into bank accounts..

Getting out of a recession or depression by printing money or reducing the value of holding cash has long been a Keynesian-style idea.  Keynes himself was very keen on the ideas of Silvio Gesell, a German merchant, who was minister of finance in the revolutionary government of Bavaria in 1919.  Gesell was convinced that the problems of capitalist depressions like the one in the late 19th century were due to the high interest rate on borrowing.  This encouraged ‘hoarding’.  If that could be stopped, then money would flow into spending and depressions would be overcome.  Keynes reckoned that Gesell’s work contained “flashes of deep insight and who only just failed to reach down to the essence of the matter.”  Keynes was particularly enamored of Gesell’s attempt to establish “an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on a repudiation instead of on an acceptance of the classical hypotheses, and on an unfettering of competition instead of its abolition. I believe that the future will learn more from the spirit of Gesell than from that of Marx.”  (General Theory).

Gesell’s main policy proposal to end slumps was stamped money. According to this proposal currency notes (though it would clearly need to apply as well to some forms at least of bank-money) would only retain their value by being stamped each month, like an insurance card, with stamps purchased at a post office.  Keynes commented: “The idea behind stamped money is sound. It is, indeed, possible that means might be found to apply it in practice on a modest scale.”  The idea was to devalue cash and force people to spend and thus raise ‘effective demand’ by breaking the ‘liquidity trap’ of money hoarding.

Gesell’s idea has been widely acclaimed by many post-Keynesians.  But unlike them, although Keynes was keen on this ‘trick of circulation’ (to use Marx’s phrase), he saw deficiencies.  One was that Gesell did not realise that capitalist investment was not just governed by the rate of interest on borrowing but also by the rate of profit on investing (what Keynes called the ‘marginal efficiency of capital’).  So he “constructed only half a theory of the rate of interest.”  The other worry was that if cash notes were stamped, then those who wished to hoard would just keep money in bank deposits, gold or foreign currency.  So we were back to square one.  For more on the fundamental differences between Gesell and Marx on money, see here:

All these money theories of crises – the wider exponent of which is so-called financialisation – have one thing in common.  They ignore or deny the law of value, namely that all the things that we need or use in society are the product of human labour power and under a capitalist economy where production is for profit (ie for money over the costs of production), not need, then money represents the socially necessary labour time expended. We see only money, not value, but money is only the representation of value in its universal form, namely abstract labour as measured in socially necessary labour time. It is a fetish to think that money is something that is outside and separate from value.

As Marx puts it: “a particular commodity only becomes money because all other commodities express their value in it” BUT “it seems on the contrary, that all other commodities universally express their values in a particular commodity because it is money. The movement which mediated this process vanishes in its own result, leaving no trace behind. Without having to do anything to achieve it, the commodities find the form of their own value, in its finished shape, in the body of a commodity existing outside and alongside them…. Hence the magic of money. …The riddle of the money fetish is therefore merely the riddle of the commodity fetish, which has become visible and blinding the eyes.”

This is important and not metaphysical gobbledy gook. If Marx is right in his characterisation of money, then we can argue that capitalist production is production for more money (value and surplus value) through the exploitation of the labour force. That means unless more value is created by the labour force, money cannot make more money. Marx was always quick to oppose the fanciful notions that the contradictions which arise from the nature of commodities, and therefore come to the surface in their circulation, can be removed by increasing the amount of the medium of circulation.” (referring to the work of Physiocrat Jean-Daniel Herrenschwand).

It is precisely in the category of interest that Marx reckons the money fetish is strongest.  In interest-bearing capital the “fetish character of capital and the [conception] of this capital fetish [become] now complete“19 (CAP III, Penguin, p.516).  Then it appears that money can make money through interest accrual with no ‘exploitation’ or ‘production’ involved. It is “form without content” (CAP III, p.255). “In M–M’ we have the meaningless form of capital, the [inversion] and [reification] of production relations in their highest degree, the interest-bearing form, the simple form of capital, in which it antecedes its own process of reproduction; […] capacity of money, or of a commodity, to expand its own value independently of reproduction – which is a mystification of capital in its most flagrant form“(CAP III, p.256).

it is this money fetish that dominates the theories of post-Keynesian gurus like the American economist of the 1980s, Hyman Minsky. Minsky’s obsession with money and finance as the cause of crises has been brilliantly exposed in a recent article by Mike Beggs, a lecturer in political economy at the University of Sydney.  Beggs shows that Minsky started off as a socialist, following the ideas of ‘market socialism’ by Oscar Lange.  But he eventually retreated from seeing the need to replace capitalism with a new social organisation, to trying to resolve the contradictions of finance capital within capitalism.

In the 1970s, Minsky contrasted his position from Keynes.  Keynes had called for the “somewhat comprehensive socialization of investment” but went onto to modify that with the statement that “it is not the ownership of the instruments of production which it is important for the State to assume” — it was enough to “determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them.” In the 1970s, Minsky went further and called for the taking over of the “towering heights” of industry and in this way Keynesianism could be integrated with the ‘market socialism’ of Lange and Abba Lerner.

But by the 1980s, Minsky’s aim was not to expose the failings of capitalism but to explain how an unstable capitalism could be ‘stabilised’. Biggs: “His proposals are aimed, then, at the stability problem. ….The expansion of collective consumption is dropped entirely. Minsky supports what he calls “Big Government” mainly as a stabilizing macroeconomic force. The federal budget should be at least of the same order of magnitude as private investment, so that it can pick up the slack when the latter recedes — but it need be no bigger.”

This policy approach is not dissimilar from that of MMT supporters.  Minsky even proposed a sort of MMT job guarantee policy. The government would maintain an employment safety net, promising jobs to anyone who would otherwise be unemployed. But these must be sufficiently low-paid to restrain market wages at the bottom end. The low pay is regrettably necessary, said Minsky, because “constraints upon money wages and labor costs are corollaries of the commitment to maintain full employment.” The discipline of the labor market remains: working people may not fear unemployment, but would surely still fear a reduction to the minimum wage (Beggs).

Thus, by the 1980s, Minsky saw government policy as aiming to establish financial stability, in order to  support profitability and sustain private expenditure. “Once we achieve an institutional structure in which upward explosions from full employment are constrained even as profits are stabilised, then the details of the economy can be left to market processes.” (Minsky).

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did.  The post-Keynesians and MMTers deny that profit comes from surplus value extracted by exploitation from the capitalist production process and it is this that is the driving force for investment and employment.  Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money as both causing crises and also as solving them by creating value!  That leads them to ignore the origin and role of profit, except as a residual of investment and consumer spending.

So much for theory.  What about reality?  The reality is that the late 19th century depression did not end because money was pumped into the economy.  But it did end, so why?  In my book, The Long Depression, I explain how Marx’s law of profitability operated and after several slumps, profitability in the major economies was restored to enable a recovery in investment in the 1890s (Chapter 2) followed by increased international rivalry in a period of globalisation (imperialism) that eventually exploded into a world war as profitability began to slip again in the 1910s

The Keynesians (including the MMTers) like to say that the Great Depression was resolved by Keynesian-style monetary easing and fiscal spending.  But the evidence is against this.  In the 1930s, monetary easing (QE etc) failed, something Keynes recognised at the time.  New Deal budget deficits were never applied much but, even so, the New Deal work programmes did not really reduce unemployment or get real incomes up until the war ‘boom’.  Again, see my book, The Long Depression, Chapter 3, where I show that the US economy only recovered once a war economy was imposed with government now dominating investment.

What is different about the Long Depression since 2009 is that, unlike the Great Depression of the 1930s, there are now very low (official) unemployment rates in the major economies. Instead, real incomes are stagnant, while productivity and investment growth is abysmal.  Financial markets are booming but the productive sectors of the economy are crawling along.  And yet the period since 2009 has been accompanied by all sorts of monetary tricks: zero or even negative interest rates, unconventional monetary policy (QE) and now proposals for ‘helicopter money’, unending MMT-style government deficits and a cashless economy (Gesell-style).

As Maria Ivanova has shown, there remains a blind belief that the crisis-prone nature of the latter can be managed by means of ‘money artistry’, that is, by the manipulation of money, credit and (government) debt.  Ivanova argues that the merits of a Marxian interpretation of the crisis surpass those of the Minskyan for at least two reasons. First, the structural causes of the Great Recession lie not in the financial sector but in the system of globalized production. Second, the belief that social problems have monetary or financial origins, and could be resolved by tinkering with money and financial institutions, is fundamentally flawed, for the very recurrence of crises attests to the limits of fiscal and monetary policies as means to ensure “balanced” accumulation.

None of the ‘money fetish’ schemes have worked or will work to get the capitalist economy going.  Instead such measures have just created financial bubbles to the benefit of the richest.  That’s because these “tricks of circulation” are not based on the reality of the law of value.

41 thoughts on “MMT, Minsky, Marx and the money fetish

  1. My impression is that the Bavarian stamped money (Gustav Landauer as well as Gessell) ultimately took the simpler form of Keynesian inflationary policies with the same aim of discouraging hoarding. This is now orthodox monetary policy as indicated by references to the IMF etc. The fringe MMT goes that one step further across the line to sheer fantasy.

    Origins were well before Keynes with Hilferding’s support for widespread ideas that financial crises could be avoided by extending the traditional Bagehot central banking principle of lending freely at high interest on good collateral to quell a panic into attempts to refute Marx’s remark that the banks cannot just buy up the overproduction with their paper.

    Maksakovsky explained that such measures COULD postpone a crisis but at the cost of intensifying it when it did break out. This was confirmed by the Great Depression which came after a couple of near crises in the 1920s were forestalled by energetic pre-Keynesian policies but finally erupted.

    But the explanation depends on understanding the underlying real cyclical disproportions between the two departments which are amplified rather than created by finance.

    The ludicrous monetary theories will always remain popular while people do not understand the underlying real cycle.

    Efforts to refute monetary lunacy while merely repeating “falling rate of profit” instead of analysing the actual cyclic opposing rises and falls in the two departments won’t work.

    If Maksakovsky was wrong you should be able to refute him rather than just refuting completely nutty theories like “stamped money”.

      1. Thanks for the link from 2016. I got here after finding it and you helpfully put me in touch with Pete Green.

        I explained that you had not refuted Maksakovsky, as your refutation taking pp136-9 as a “concise summary” indicated you had not actually read enough of it to understand what he actually said.

        A year later, (and a year ago) you wrote:

        “I agree that accumulation and competition are the drivers of technology and profitability – if I understand your point correctly. I too am reading Maksakovsky more closely to take a view on his approach. Watch this space.”

        That was after I had attempted a summary of Maksakovsky in points 19 to 37 of an absurdly long comment in an absurdly long thread (84pages!).

        I am still watching this space.

        If you did in fact read Maksakovsky “more closely” and write about it I have not seen it and your link to 2016 instead of some post subsequent to forming that intention strongly indicates that you did not in fact carry it out and should now do so.

      2. I shall be publishing a long paper on disproportion theories of crises later this year as part of a series of chapters on various subjects in conjunction with Mino Carchedi. So continue to watch this space. – patiently.

  2. Will continue to watch this space. Would be more impatient if I had managed to produce something publishable on Maksakovsky myself over the past two years.

    I agree that “disproportionality theory” is a more accurate label than any others available. It certainly is not an “underconsumption theory” or a “profit squeeze theory” or the “falling rate of profit theory” that seems to have resulted from the absurdity of the other two.

    But PLEASE don’t assume just lump Maksakovsky with other disproportionality theories that are quite different. You will need to read Maksakovsky “more closely” as you said, not just reply to others disproportionality theories that Maksakovsky explictly criticized (eg Hilferding). It was quite absurd to quote Grossman on Marx’s reproduction schemes when the theory is about necessary endogenous cyclic divergences of prices from values based on those schemes.

    Maksakovsky is describing a cyclic disproportionality, not the usual accidental “anarchic” disproportions.

    Specifically Maksakovsky explains HOW the organic composition of capital rises in the wave of fixed capital investment induced by low prices and profit rates AFTER a crash – directly opposite to theories that the crash is induced by the rising organic composition of capital.

    He then explains how the long gestation period for fixed capital investments in department 1 results in demand continuing to exceed supply and relative prices for that department continuing to rise and continue to develop a disproportion between the two departments until eventually the supply comes on stream and ends the boom with a crash.

    There are lots of theories that cover booms turning into crashes. But they don’t explain cycles because they don’t explain recovery from depressions following a crash.

    Its quite a short book. But you do need to read at least up to the end of chapter 2 to understand it is totally different from other disproportionality theories. Postpone the long translator’s introduction.

    For others interested link for free download is here:

      1. Three times with extensive notes is great! When you do respond to it that should at least be a basis for serious discussion. Looking forward to it.

    1. We don’t need to go through Maksakovsky. In Book II, Marx already demonstrates simple reproduction is impossible in capitalism (so, there goes the premisse capitalism is a system in equilibrium).

      1. Unfortunately the reproduction schemes in C2 are both unfinished and very difficult reading. Marx went to an awful lot of trouble showing detailed flows of exchanges of products and labor power for cash with quadruple entry book-keeping to explain a “System of National Accounts” without introducing credit so people could see that inevitable disproportions between the departments would produce monetary crises rather than the other way around and not as a result of their appearances in banking and financial crises. Maksakovsky completes that work by showing the cyclic movement of the disroportions with cyclic movements of market prices in each department above and below values (ie production prices). Most other theories either start from finance, are based on “shocks” or bizarrely try to explain a cyclic disequilibrium by a long term trend. Marx and Maksakovsky compare the cycle to the planetary orbits which are a dynamic resolution of two contradictory movements – a gravitational acceleration towards the Sun (necessary value relations) and a tangential velocity away from it.

    2. “Specifically Maksakovsky explains HOW the organic composition of capital rises in the wave of fixed capital investment induced by low prices and profit rates AFTER a crash – directly opposite to theories that the crash is induced by the rising organic composition of capital.”

      That’s not what happened 1990-2000 in the US; nor 2001-2003; nor 2005-2007; nor 2008-2018 (so far)

      1. I agree there is no simple way to relate Maksakovsky’s theory to recent developments. It is at a level of “pure theory” similar to the abstraction of Marx’s reproduction schemes. He calls for detailed studies of concrete conditions in various countries as necessary to develop a more concrete theory.

        I also agree that there was no such wave following a crash in those periods. But that is because I don’t agree there was a crash.

        What Maksakovsky does achieve is a systematic account of the regular cycles that Marx was discussing, which maintained a pattern for a century from about 1820 to 1920 (regular, but not periodic, and disrupted in the period leading up to the first world war). Correctly understanding that pattern is clearly necessary, but obviously not sufficient for understanding the subsequent century including the Great Depression, and Second world war, “Great Moderation” and GFC.

        What is very striking is that a regular pattern of business cycles has persisted. This needs to be explained and I think the explanation given by Maksakovsky is highly relevant whereas other theories about long run tendencies make no sense to me as explanation for a recurrent business cycle.

        But unlike the 19th century cycles the pattern has changed significantly since the Great Depression. Instead of the turning point being marked by a full scale crisis and crash it has been much more “moderate”. Even the GFC did not result in a full scale crash but rather the potential for such a crash was postponed by unprecedented monetary measures.

        Obviously current empirical and theoretical work is needed for understanding that different pattern and what it may produce. Hints in either Maksakovsky nearly a century ago or from Marx even earlier cannot substitute for that work.

        But I find it very interesting that Maksakovsky suggested the sort of measures proposed by Hilferding etc that became Keynesian orthodoxy throughout that period COULD postpone a crisis but only by intensifying the underlying disproportions so that when a crisis does eventually break out it will be more intense. My guess is that describes what has been happening with the crashes that would have been the turning point of successive business cycles being successfully postponed by more extreme financial distortions until we almost had a full scale crash in the GFC of 2007-2009 and instead of complete complacency about the “Great Moderation” there is widespread concern that the next crash could be bigger than the Great Depression.

        That guess is no substitute for a theory, but Maksakovsky’s theory of the previous cyclic pattern is clearly worth studying as preparation for a “pure theory” relevant to current conditions. Staring at the tea-leaves of current statistics and repeating phrases like “falling rate of profit” cannot substitute for actually having a theory that incorporates a regular cycle. A coherent “pure theory” is missing at present but is necessary as the basis for a more concrete theory just as one needs to understand the law of gravitation before working on improved Astronomical almanacs.

      2. Agree with the importance of Maksakovsky’s work, but it’s a little bit of a stretch to say 1) the business cycle occurs with persistent regularity 2) Maksakovsky provides an incisive explanation of the cycles 3) BUT… the conclusions of that explanation can’t be related to recent economic conditions.. because there hasn’t been a “crash,” as if “crash” is a specific, and scientific category in the critique of capital.

        So….yes, The Capitalist Cycle is a brilliant analysis, but it does not quite account for the overall pattern of capitalist development; its structural changes, and the limitations intrinsic to accumulation that determine the persistence of the business cycle, and the structural declines, despite mitigations, monetary policies, fiscal policies, etc.

      3. Glad we agree on importance of studyinng Maksakovsky’s work despite the fact that no purely theoretical work done in past centuries could possibly account for current developments.

        I am using the term “crash” loosely for the specific scientific category described by Marx as a sharp fall from the peak of a boom to the trough of a depression. This regularly took place in conjunction with a credit and monetary crisis at the turning point of each cycle.

        Since the Great Depression the cycle has taken the form of less sharp “recession” at the turning point and for a while they were confident that even that backwards movement could be eliminated, leaving only “growth cycles” (a regular rise and fall in the rate of positive growth without the negative growth of a recession.

        So it is no stretch to say:

        1) The current business cycles discussed daily are a continuation of the same persistent regularity discussed by Marx.

        2) Maksakovsky provides an incisive explanation of why Marx was right in believing that this is an essential feature of capitalism.

        3) Maksakovsky also provides a plausible prediction that what are now called “Keynesian” measures could only postpone “crises” by prolonging and so intensifying the cyclic disproportions that are the basis of the cycle so that the eventual crisis and crash would be worse
        than if they did not try to prolong the boom.

        4) Both Marx and Maksakovsky deferred incorporating the State and the World Market into their pure theory. That was necessary to avoid
        distraction and actually develop a theory based on the essential features before adding more complex problems. Given the dramatic increase in the importance of the State and globalization which introduces a previously non-existant category of “mitigations, monetary policies, fiscal policies etc” in the last century it is obviously necessary to theorize them before any hope of a more concrete theory that can relate to current economic conditions. But efforts to do so without having first grasped the underlying theory WITHOUT the State have proved spectacularly unsuccessful.

      4. Except “3”–“3) Maksakovsky also provides a plausible prediction that what are now called “Keynesian” measures could only postpone “crises” by prolonging and so intensifying the cyclic disproportions that are the basis of the cycle so that the eventual crisis and crash would be worse
        than if they did not try to prolong the boom.”

        has not, by your admission, is exactly what has not occurred.

      5. No, my only admission is that it has lasted a lot longer without a crash thann Marx or Maksakovsky could have expected. So long that “marxians” along with other economists lost interest in serious study of both the business cycle and the related theory of crises and were taken by surprise by another crash almost occurring in the GFC. I remained among the small minority that continued to agree with Marx’s view that crashes are an essential feature of the dynamic growth of capitalism during the many decades in which that view became basically forgotton based on absence of empirical verification since the Great Depression. There is more interest in business cycles since the GFC though not as much as there will be again if/when there is another Great Depression.

        My guess is that the numerous business cycles in recent decades each resulted in successful monetary and fiscal policies to postpone a crash with this prolonging the post-war boom and continuing to intensify the underlying disproportions so that the financial imbalances are carrying more and more of the weight of the sectoral imbalances and shifting them to resolution in the future rather than the present. Since the GFC we have had a decade of near zero interest rates which are fundamentally incompatible with proportional growth but efforts to get
        back to “normal” balance sheets in preparation for another dose of “stimulus” the next time a crisis looms keep having to be postponoed because the undead zombies that were bailed out in the previous postponement would go under and bring down the rest if they their underlying insolvency was recognized as not being mere lack of liquidity.

        There is no way to predict how long that can go on for without a far more fully developed theory than we have (and even with an adequate theory both the amplitude and length of each phases of a business cycle are highly contingent).

        There is certainly no basis for your implicit assumption that what has not yet occurred won’t occur.

        That implicit assumption has no better prospects than the undending pretences of “marxians” that each “credit squeeze” and recession was a “crisis” or for the more understandable belief among revolutionary Marxists in the 1930s that the Great Depression was part of a final “general crisis” and collapse of capitalism rather than a partiularly intense example of the cyclic dynamic growth pattern of capitalism.

      6. PS Above discussion links directly to the thread topic of MMT, Minsky etc. The success so far of quite extreme monetary measures to postpone crises is the basis for magical thinking that all problems can be solved, as distinct from postponed and intensified, by simply printing money.

        Explaining how capitalism actually functions and enables workers to take over is the best way to combat magical thinking about money.

        Ridiculing people’s superstitious beliefs does not help undermine religion, whereas people who understand that they can change the world are rapidly abandoning religion.

  3. “In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy. One option to break through the zero lower bound would be to phase out cash”

    Isn’t it borderline socialism? I mean, the IMF is so desperate to save capitalism it is willing to sacrifice hoarding — an indispensable ingredient not only of capitalism, but of the very concept of private property. If I understood this right, it is willing to basically use the financial architecture as a device of global planification of the economy.

    The blind belief capitalism is a system in equilibrium may lead to its very self-destruction (in this case, Gedell’s wrong belief total money-capital can always meet/convert into total demand, and its derivatives theses).

    1. Central bankers and the IMF are probably the least likely people to believe capitalism is a system in equilibrium.

      Sacrifice of money as a store of value for hoarding and indeed “euthanasia of the rentiers” has been orthodox policy since the last Great Depression. Money can and does still function as a universal equilavent when its ability to store value for long is undermined by “moderate” inflation. With inconvertability (now nearly half a century of inconvertability) both its function as world money and its function for storing value have to be replaced by complex financial instruments (eg trillions of dollars traded daily on currency futures markets). There is no hope of understanding how that works without first understanding how the underlying reproduction works as partially explained in C2 and continued by Maksakovsky.

  4. I agree with Roberts that MMT offers no solution. It’s a kind of ‘balance sheet equilibrium theory’ by another name. But Roberts is just wrong factually about the New Deal and recovery. Unemployment was 25% in 1933 (30% if agricultural labor is considered, which is usually left out of calculations). The New Deal program, Works Progress Administration, created 8 million jobs for US workers (out of a work force of about 40million). That’s not a failure. Unemployment rates fell to around 15% by 1937–a high number but half that of 1933 in just four years. The New Deal was then ‘negated’ in late 1937-38 as conservatives took over Congress again, reduced government spending and tightened monetary policy. It tripped the US economy back into depression in 1938. The politicians then quickly reversed themselves and jobs and growth recovered, a little. Unemployment and the economy did not really fully recover until starting 1940-41. Yes, the war spending put people back to work, but you can’t attributed it all to war spending. The New Deal was significant, especially government direct hiring (and not at minimum wage) of 8 million workers over the course of the program.

    1. Your estimates are still to high as they are based on the Bureau of Labour Statistics but that excludes emergency workers employed in the various Federal programmes.
      If you include those workers then in 1937 the UE rate was really 9.1%.

    2. “The New Deal was significant, especially government direct hiring (and not at minimum wage) of 8 million workers over the course of the program.”

      Federal minimum wage didn’t exist before 1938, when it was introduced at 25 cents per hour. The average wage for a person employed on a WPA project in 1939 was $52.50 per month, with an average 110 hours per month per employee, above the minimum wage, but below the wage levels for comparable work in the private sector. Pay scales ranged from $40/month in rural areas for unskilled workers to $94 per month in Northern cities for skilled workers.

      Success? At it’s peak 8.5 million were employed, and the program certainly sustained those 8.5 million just as surely as the WPA provided infrastructure necessary that would prove necessary to capital accumulation.

      Still the fact remains that the usual measures — GDP, GDP per capita, Personal Income, Personal Disposable Income, capital invested in manufacturing– show levels in 1939 below that of 1929. Non-residential capital stocks declined, etc. etc.

      Unemployment in 1929 was 3.2% of the civilian labor force; 24.9% in 1933 and 17.2% in 1939. Don’t know that qualifies as success

      Productivity indexes showed significant increases, a result of reduced employment.

      Statistics (except for WPA wage rates) from US Dept of Commerce Historical Statistics of the United States Colonial Times to 1970 (Bicentennial Edition)

      1. As Andy B says, Rasmus’s & your unemployment figures have long been known to be absurd, for the reason Andy B gives.
        Here is a reference using the very source presented:
        (Very) short reading list: unemployment in the 1930s

        Need I remind people that the New Deal started in 1933, not 1929? Is the earlier date appropriate for measuring the success of the New Deal? By the “usual measure” (not at the time, though, in the infancy of such statistics), the New Deal saw the highest peacetime GNP growth the USA has ever seen.

        Thinking of only the millions employed directly by the work programs misses the millions employed by the money the program workers spent in the private sector, increased investment etc.

      2. There’s nothing absurd in pointing out that the New Deal did not lead to a recovery in capitalist accumulation, which is the point. Hence the numbers on GDP, GDP per capita, capital invested in manufacturinging, etc.

        I’m not arguing that the New Deal didn’t help 9 million and their families survive. I’m saying that using the measures that capitalism uses to measure ITS success, the New Deal did not “right the ship.”

        You might as well be arguing about the “success” of welfare and unemployment insurance when the expenditures and numbers requiring those programs increase.

        The issue(s) is/are the underlying causes the precipitate those increases and whether the unemployment insurance or welfare provides a remedy for those causes.

      3. Forgot to add.

        “Missing the millions spent in the private sector, and increased investment?”

        OK Personal consumption expenditures: 1929 77.2 million; 1933 45.8; 1939 66.8. An impressive gain, but still below the 1929 (and 1930) levels……except……the civilian labor force had grown by 14% in that period, so “per capita” between 1929 and 1939 represents a decline of about 25%, certainly better than 1933, but certainly not “success.”

        Now the same exercise can be done for capital expenditures, corporate assets, capital in manufacturing industries, and even the physical consumption of coal, coke, fuel oil,used in manufacturing… and even the decline in foodstuffs produced over the ten year period.

        Was 1939 “better” than 1933? Without a doubt. Had capitalism “recovered”? Not hardly.

  5. “[..] Again, see my book, The Long Depression, Chapter 3, where I show that the US economy only recovered once a war economy was imposed with government now dominating investment.”

    but how the government dominated investment? and how is that different from MMT proposals of unlimited fiscal spending while inflation is under control?

    1. MMT/Keynesians propose budget deficits to fund government programmes to achieve full employment. They make no mention of what to do about the bulk of investment ie the means of production owned and controlled by the S&P 500 companies. The government will be unable to exert a decisive control of the direction and structure of the economy without public ownership and control of these companies’ assets. Keynesians/MMT merely want government to act as a backstop to capitalism when it does not invest enough to achieve full employment. Their policy is to ‘manage capitalism’ between unemployment and inflation (back to the Phillips curve) to make it work better. Such ‘management’ has proven to fail – see my book for the reasons, namely that capitalist investment depends on profitability. That would still be the dominant driver for investment.

  6. ” but money is only the representation of value in its universal form, namely abstract labour as measured in socially necessary labour time.”
    MMT doesn’t deny that. Money represents abstract labour because the money issuer determines how much labour hours have do be worked to get the money unit. The JG anchors the money unit in x amount of labour. Everybody needs money units to pay taxes. Even self sufficient peasants would have to perform surplus labour for the state just to pay their taxes. Its a form of what Marx called “Asiatic despotism” with the difference that the state would be democratic.

    Why deny that this could be done, if it was already done in history? Ancient Egypt worked a bit like this, but as far as I know they didn’t use money for their domestic market, they were just bartering. Also no democracy.

    By the way I think it’s wrong to put MMT in the negative interest rate/inflation camp. MMTers are just as inflationphobic as Marxists. There is no discussion of negative interest rates in MMT.

    If you enact MMT and Marx’ falling rate of profit has it right, more and more people will work for the state (since it is not profitable for the private sector to hire them). As long as interest rates are below the growth rate (and why should interest rates rise if profits are low?) debt levels can be sustained forever. One could argue that the state won’t create productive work producing inflation in the long run, but can a committed socialist argue that?

    1. As far as I am aware, MMT does not accept Marx’s of value and indeed has no value theory at all – instead apparently MMT reckons the state can measure the labour hours in money arbitrarily, not the capitalist accumulation process. I do deny the Chartalist view of the origins of money in history ie only the state historically has created the need for money. There are plenty of examples of money operating without the state historically. I did not say MMTers advocate negative interest rates; just that the NIRP is another example of the money fetish by mainstream and post-Keynesian economists alike – because neither has a value theory. I doubt that the job guarantee would lead to a gradual taking over of employment by the state from the private sector – socialism by stealth? If we had a government with enough political power to introduce the JG, why not go the whole hog and take over the capitalist sector itself? Even holding interest rates to zero (which interest rate?) to keep debt servicing costs down would not work to sustain full employment if capitalists remain dominant and do not invest because of low profitability. The experience of low interest rate policy to sustain growth or avoid a debt crisis is that it does not work.

      1. Why money fetish?
        I print a 50$ note and give it to you, then I take out my gun and put it to the head of an average unemployed worker coercing him to bring me 50$ till the end of day. Knowing that the poor guy needs the 50$, you press out all the surplus labour he can perform in one day, let say 5 hours. So my printed 50$ note is worth 5 hours of labour to you. All I need to do this is: a printing press, a gun and a worker.

      2. But it becomes a fetish when the person with the gun is veiled behind the money, and the power that is attributed to the shooter is transferred to the money itself, which is how capitalism operates in its “ideal” self-representation. It is as if the exchange relationship is natural, as if it is natural for money to compel the laborer to present his/her time as an exchanageable value, and there is no need for the gun or the shooter.

        If as you say, all that is ever needed is the shooter, the gun, and the $50, then taking command of the money means overthrowing the social relationship that stands behind it, i.e. the shooter and the gun; and that can’t be done by simply taking over the printing presses. History seems to have disappeared completely in the MMT scheme of things, (in itself a sure sign of fetishism), and I’m not talking ancient history– Chile 1973 for example.

        Amnesia, denial, disavowal of the reality of how the bourgeoisie will act, must act, when property relations are threatened–and we’re moving way beyond fetish and into pathology.

      3. ‘All I need to do this is: a printing press, a gun and a worker.’

        Sorry, cannot grasp this! How are the values of these things determined?

      4. MMTers don’t think printing money alone is enough, you need to take over the state (by democratic means) to secure the authority to spend and tax and you need a workforce as your tax base.

        I’m interested in strictly economic arguments against MMT. Political arguments that the bourgeoisie won’t allow this to happen are on a different page.

        If I understood Michael Roberts correctly his main economic argument against MMT is that you won’t get to full employment combined with high productivity if you are not ready to take over most of the economy. You need control over the means of production, not just money and taxes, since capitalists without profits will just shut down production.

      5. You are right about the key difference. MMTers dont see the need to take over the means of production and thus control investment and employment. They never advocate that. Indeed, they look for an alternative to that – namely through the printing press and government deficits, all can be achieved without touching the capitalist sector’s control of the means of production. This is a dangerous delusion for the labour movement to follow.

  7. Michael is basically correct on the New Deal regardless of the exact employment numbers. It was the war effort, and not the prewar New Deal measures, that enabled the restoration of the rate of profit at relatively high employment rates. This was accomplished not only by state provision of all new net productive investment during the war years, while leaving prewar industrial capital in private capital hands, but also because these capitalists temporarily acquiesced in state dictation of their output by war planning boards dominated by their own representatives. More critically, war planning imposed an effectively martial law labor regime where strikes were formally banned with the support of the Communist Party USA, then still the most important working class oriented party with industrial influence. Real wages were depressed below the value of labor in this regime as witnessed by the rising nominal money savings of workers in this period. In the aggregate, the war years witnessed the greatest number of workers involved in strikes in US history, but the vast majority were highly diffuse, atomized wildcat actions by very small numbers of workers. The exceptions were either ruthlessly repressed, as in the racist Philadelphia transport workers strike, or appeased as with Lewis ‘ UMW.

    What a deal for the capitalists, with real wages artificially depressed by state diktat and further, the high probability of the capture of overseas markets by military means, particularly that ever Holy Grail of US capital, the “China market” once Japan was crushed, the latter carried out with alacrity and genocidal ruthlessness.

    No wonder they went along with the “class traitor” Roosevelt, at least until the end of the war. And no wonder from a Marxist perspective that a (highly militarized) politics was in command, for its point is not only that the rate of profit will determine private capitalist investment, and that all others being equal the tendency is for the rate of profit to fall, but also to hold that once the fall in the rate moves from tendency to *realization*, there is no way to recovery by means “normal” to private capital itself. The Marxist point is: extraordinary political acts are required. Politics is in command. That is the real historical meaning of the present vogue in MMT.

      1. Indeed, I think that the US economic system (and the Bushes’ “new world order”) can best be understood in terms of US capital’s needing to institute Roosevelt’s military/industrial complex in order to countervail the return of the Great Depression, after the war that ended it came to an end. Trump may be the farcical return of Roosevelt as Mussolini.

  8. Speaking of cash and the war on cash by the limpet Modi

    indians raise juvenile and supine queries and objections on money laundering and Pakistan

    I present the largest money laundering operation in the world sponsored by a state

    The Hindoo Notebandi

    The Demo Scam – which no Indian Newspaper reported – as they were all paid off – as they are of the ilk of the Brahmins and Banias.dindooohindoo

    It is the disaster of the Brain of Narendra Modi !

    Part 1

    Conversion Route (Elementary Level – rest to be submitted at the CIC Hearing)

    • Party A has Rs 1 crore of Old Cash (which is obviously unaccounted) and the choice of paying tax and interest thereon has lapsed as there is no VDIS – and post Demo the deemed tax is 100% at the minimum
    • Party B (Stage 1 Converter) has Rs 65 lacs of New Cash – which is given to Party A in lieu of the Old Cash of Rs 1 crores which is then given to Party C to X as under:
    o Party C to X (Stage 2 Converter) are legal entities who trade in Nil VAT/ST products (or under Exemptions and /or Compounding) and are POS Retailers who then , make manual or backdated E-Bills for fictitious sales of items to unknown individuals and deposit the new cash into the bank
    o Party C to X deposit the cash in banks whose books are open for 30-45 days before the date of announcement of the Demo or whose IT systems allow backdating of E- Bank Statements (within the period of reporting to the RBI and other Regulators)
    • Party Z then taps Party A to convert the New cash Received of Rs 70 lacs into a capital entry to clean the cash at a rate of , say 15%, wiring Rs 59 Lacs to Party A, as a capital receipt etc, and taking the Rs 70 lacs of new cash from Party A
    • Party Z which is basically front for Party B – hands the cash to Party B, after charing the custodial, logistics and security charges
    • Party B then resumes the same chain as in Step 2 above, wherein the rate of the conversion, id.est., 30% keeps rising as the DEMO deadline appears
    • Party A can convert the Rs 50 lacs into cash – new and old – at a premium, at any time that it is required


    • Since converters had the new cash within a day and as per news reports , even before the announcement of Demo, they have to be part of the establishment
    o If the converters had withdrawn the new notes from the bank, the banks would have tipped off the DRI/ED etc and possibly reported to the RBI – in which case they would be raided (but were not) or they would have to explain why large amounts of cash were withdrawn (for labour wages – although wages are not paid in Rs 2000 notes , agri payments etc) and on specific dates and how/why the banks were satisfied about the same
    o Hence, if the converters got the new cash o/s the Banking system – that is fraud and PROOF THAT THE CONVERTERS ARE PART OF THE ESTABLISHMENT
    o If the converters got the new cash from the banks – it is proof of collusion and fraud by the bankers, as past patterns of withdrawal by bank customers (for labour, wages, agri payments etc), would not support the new notes withdrawal
    • Since converters had TO TRANSPORT CASH ACROSS LOCATIONS, IT WOULD HAVE REQUIRED SECURITY OR PERHAPS STATE SECURITY, they have to be part of the establishment as
    o It is impossible that the state would not be aware of the logistics and security
    o It is impossible that the state would not raid the cash movement
    • Since Party C to X, who would have reported drastic increase in cash sales and deposit of cash into the bank , would not be able to support the same by PAST PATTERNS OF RAW MATERIAL PURCHASES AND TRADING PURCHASES AND SUCH LARGE AMOUNTS OF PURCHASES OF RAW MATERIALS IN CASH – COULD NOT HAVE BEEN JUSTIFIED BY PARTY C TO X , W/O THE SUPPORT OF THE ESTABLISHMENT

    • Cash recovered in the “form of old notes” by the “DRI/ED and the Police” – were all recovered from the “so called originators” and “so called garbage dumps”- w/o “a single case of cash recovered” from “the converters/entry operators”

    • No cash was recovered from the “converters/entry operators (Party B and Party C to X, as stated above)”, who are obviously part of the establishment – which is unusual , as the operators would be having the new currency which o Is either kept in a house/safe or o Stocked in the bank (which would have tipped off the DRI/ED etc or o Transferred the cash around in new stocking points and neither of the 2 above points can happen w/o the support of the establishment
    • Since the GDP is still growing on the “computation mode of GDP on expenditure mode”, and there is “no shortage of notes” of less than Rs 100,it would mean that the Industrial agglomerations typified by the SSI and the Cash sector,have been “able to convert the bank deposits”, back into cash – “obviating the purpose” of the notebandi (Rs 100 is assumed,as the wages are paid in that denomination

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: