Bill Mitchell-en Marxists getting all tied up on MMT
(…) I have been thinking about the so-called Marxist-inspired critiques of Modern Monetary Theory (MMT) and just the other day another one popped up in the form of the long article by Paul Mason. One of the things that I have noted about these critiques is that they deploy the same sort of attack against MMT that mainstream economics has traditionally deployed against Marxist economics. One would think they would at least be consistent. It won’t take me all that long to explain that.
(i) Marxismoa ekonomia neoklasikoa baino sakonagoa da1
(ii) Marxismoa eta Bill Mitchell (DTM): lan-merkatua2
(iv) Lan-indarraren erabail-balioa4
(v) DTM eta gobernu-sektorea5
(vi) Marx eta DTM 6
(vii) DTM (Mitchell): Banku zentrala eta altxor publikoa, gobernu-sektorea7
(viii) DTM-ko bi errealitate-maila8
Gaur Maiatzak 1 da, ikus ondokoak:
1 Ingelesez: “Marxists getting all tied up
I was attracted to the writing of Karl Marx was because I considered his brilliant discussion of the differences between the superficial relationships we see in the market (so-called ‘exchange relations’) and the essential relationships that tie worker to the capitalist and create the conditions for surplus value production.
A student studying neoclassical economics stays forever at the exchange relations level and can never appreciate the origins of profit. They think that somehow profit is created in the market via exchange of goods and services.
These students are indoctrinated into ‘free market’” myth, where we are all, essentially, free traders and own-producers at heart who agree (aided by market forces) to specialise into labour suppliers or capital providers. The myth continues that we are all free traders – everything is voluntary and all exchanges are mediated by market prices which deliver equalised use values to each party to the exchange, to be enjoyed upon completion of the same.
Capitalism is thus fair and efficient.
The ‘everything can be understood at the exchange level’ view falls in a hole when we focus on the labour market Marx’s analysis of the wage form.”
2 Ingelesez: “I wrote about this in this blog post (among others) – The labour market is not like the market for bananas (August 17, 2012).
There is extensive analysis of this in our new textbook – Macroeconomics – despite some Marxists claiming MMT neglects any sense of class struggle.
The point is that the concept of a market for ‘labour’ is somewhat of a misnomer because if we try to analyse the transactions that occur in this arena in terms of a simple exchange of use values essential insights into the operations of the economy are obscured.”
3 Ingelesez: “For Marx, the major challenge facing capital is to ensure the labour power they purchase becomes a flow of labour services (or simply labour). This observation suggests that the capitalist firm faces a control problem pertaining to how the managers extract work from the potential they have bought.
In modern terms, the firm agrees to pay a wage to the worker for a given working day (which itself might vary according to various rules). At that point in the exchange the firm has purchases the labour power, which is the capacity to work. No actual labour services have been purchased in that transaction.
It looks as if the worker is being paid for the entire working day – say 8 hours. But that focus on the exchange relation is misleading.
The task of management then is to organise, muster and deploy that labour power in a controlled way to ensure that for the time the worker has agreed to work they are delivering the desired flow of labour services to the firm.
It is in that way that the firm ensures they produce enough output from the labour power purchased, which upon sale, will return the funds outlaid on wages (and other materials the workers use) and leave a sufficient residual – profits – which will satisfy the objectives of the owners of the firm.
A study of the modern labour market therefore has to be conducted within the context of the primacy of managerial control and the need for the capitalist firm to maximise the flow of labour they gain from the labour power they purchase.”
4 Ingelesez: “Further, unlike a simple exchange of goods for money, the use-value of the labour power is enjoyed (extracted) within the actual exchange (that is, while the workers are still at work). The use-value – the source of profit – is uncertain and a control function is indicated.
Bosses have to control the realisation of that use value as production in an environment where the majority of workers would rather not be there. That is a very different dynamic environment to one where we go into a shop and buy a trinket to be enjoyed later.
Under capitalism, a worker might only need to work for 2 hours in a day to perform what we call ‘necessary labour’ (that required to maintain survival of the worker). For the rest of the working day, they are producing ‘surplus labour’.
The worker appears to work say an 8-hour day for a certain hourly wage, which blurs the distinction between the two types of labour.
Why don’t they just leave after 2 hours? The reason is the workers do not possess the means of production and hence the means of subsistence.
A defining feature of capitalism is that the capitalist owns the productive means and the worker, while free to choose which capitalist to work for, has to work to survive. Survival requires the worker agree to work for, say 8 hours to get the wage which might be equivalent to 2 hours of production.
This is the wage form. It was a brilliant exegesis by Marx that provides a penetrating insight into the dynamics of our systems and continues to resonate.
It is why class (in Marx’s terms) has to be at the forefront of the analysis. Nothing in MMT denies that status!”
5 Ingelesez: “Another way of thinking about this is that Marx lifted the veil of free market ideology to expose what is actually going on in the capital-labour exchange.
We should always being aware that these veils are often used to disguise power relations or other things that the elites do not want to be made transparent.
Now think about MMTs treatment of the government sector.
I explained that in an early blog posts (among others):
1. The consolidated government – treasury and central bank (August 20, 2010).
2. The sham of central bank independence (December 23, 2014).
Essentially, despite the appearance that central banks have become independent of the political process, an appearance that is reinforced by false statements from my profession, the fact is that at the level of substance, the central bank and the treasury departments work closely together on a daily basis.
Further, the politicians tend to appoint central bank management and set the legislative framework in which central banks operate.
Some of the critics of MMT have, however, focused on the independence issue as a sign that MMT is deeply flawed.
They claim that MMT presents a fictional account of the world that we live in and in that sense fails to advance our understanding of how the modern monetary system operates.
This fiction is centred on the way MMT ‘consolidates’ the central bank and treasury functions into the ‘government sector’ and juxtaposes this with the non-government sector.”
6 Ingelesez: “Recent versions of this attack came from Gerald Epstein and Doug Henwood in separate papers. Both are avowed Left wingers who mention Marx a lot. Henwood’s article in Jacobin invoked Marx regularly.
I addressed the Epstein critique in this blog post – The conga line of MMT critics – marching into oblivion (March 7, 2019).
I didn’t address all the issues in that response – and so today I add to the list.
I didn’t bother addressing the Henwood attack as it was mostly a personal attack on particular people he seems not to like.
Epstein thought it was useful recycling the claim about central bank independence. He wrote:
… many other claims are based on a consolidated functioning (balance sheet) between the central bank and the government, a consolidation that does not exist in most countries …. In the US, specifically, monetary financing of deficits does not happen automatically. The Federal Reserve has to chose to monetize the debt by doing open market operations, and this choice is as much a political one as an economic one. In practice, the Fed has done this sparingly. Understanding the political economy of the Federal Reserve is therefore key to understanding the institutional limits of MMT
There are technical mistakes here – such as claiming that central banks can only “monetize the debt by doing open market operations”. That is incorrect. But not the point of today’s blog.
The point is that by focusing on the ‘institutional’ arrangements of a country and claiming that they become a binding constraint when in fact these arrangements are just choices of government is akin to criticising Marx for exposing the origins of profit.
We cannot see surplus value production. It is disguised by the wage form. In the same way, these voluntary constraints that government impose on themselves serve to disguise their intrinsic capacities and operations.
If we dig deeper into the production sphere we can see clearly that workers are not paid for 8 hours work but 2 or 3 or whatever is required to satisfy subsistence labour.
Similarly, if we understand that these ‘rules’ and ‘accounting’ conventions that governments erect are all political and ideological artifacts that keep most of us from seeing what the true arrangements and operations are.
The other example that is interesting is the claim that a government such as the US is financially constrained because in Henwood’s words:
But the government doesn’t do that. It spends only money gotten from tax revenues or bond sales. (If you don’t believe me, look at a Daily Treasury Statement, a daily accounting of the federal government’s income and outgo. It looks a lot like any normal financial statement, only with a lot more zeroes.) The Fed is forbidden by law to purchase bonds directly from the Treasury.”
7 Ingelesez: “Well before these characters tried to jump on the bandwagon and start criticising MMT, I considered some of these claims in this series of blog posts:
1. Modern Monetary Theory – what is new about it? (August 22, 2016).
2. Modern Monetary Theory – what is new about it? – Part 2 (August 23, 2016).
3. Modern Monetary Theory – what is new about it? – Part 3 (August 25, 2016).
I wrote that the problem is that these critics have failed to understand the intent of the MMT consolidation of the central bank and treasury functions into a whole government sector.
Long before any of them entered the debate, I had observed that governments had erected elaborate voluntary contraints on their operational freedom to obscure the intrinsic capacities that the monopoly issuer of the fiat currency possessed.
Please read my blog post – On voluntary constraints that undermine public purpose (December 25, 2009) – for more discussion on this point.”
8 Ingelesez: “In the same way that Marx considered the exchange relations to be an ideological veil obscuring the intrinsic value relations in capitalist production and the creation of surplus value, MMT identifies two levels of reality.
The first level defines the intrinsic characteristics of the the monopoly fiat currency issuer which clearly lead us to understand that such a government can never run out of the currency it issues and has to first spend that currency into existence before it can ever raise taxes or sell bonds to the users of the currency – the non-government sector.
There should be no question about that.
Once that level of understanding is achieved then MMT recognises the second level of reality – the voluntary institutional framework that governments have put in place to regulate their own behaviour.
These accounting frameworks and fiscal rules are designed to give the (false) impression that the government is financially constrained like a household – that is, in context, has to either raise taxes to spend or issue debt to spend more than it raises in taxes.
Importantly, by introducing the consolidated government sector, MMT strips way the veil of neo-liberal ideology that mainstream macroeconomists use to restrict government spending.
We learn that these constraints are purely voluntary and have no intrinsic status. This allows us to understand that governments lie when they claim they have run out of money and therefore are justified in cutting programs that advance the well-being of the general population.
By exposing the voluntary nature of these constraints, MMT pushes these austerity-type statements back into the ideological and political level and rejects them as financial verities.
I could cite more Left critiques which also fall into the same trap of taking the ‘exchange level’ reality as the end of the story.
Which is exactly what Marx railed against.”