From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Fri Aug 18 2006 - 15:41:38 EDT
>Well Rakesh you could always defend your point of view in a formally >published article... Does this admit that many of my points were simply repeated? I include some of my old posts so that you can make up your own mind. In general, I think formally published articles should acknowledge web sources. It's done all the time. And the web has advantages of allowing for direct point counterpoint. So that is why I used it in the case of Andrew's critique of Grossman. At any rate, I could have been asked to present my criticisms of Grossman in Science and Society if the journal was interested in the debate; wouldn't that have been better than having many of criticisms repeated without acknowledgement? Assuming that is what happened. As I do most of the child care for a soon-to-be-two-year-old, I'll speak to your criticism later. I'm going to the park. Rakesh Here are my old posts: In his paper on Grossmann and Kalecki Andrew Trigg wants to show no foundering of capital accumulation on shortage of surplus value if s/v rises. Andrew T has the rise in s/v determined by ex ante capitalist consumption decisions which are in turn determined by a strict rule. The rise in s/v could be determined in other ways. If capitalists follow this strict rule and borrow and spend ever more on their own consumption, then (according to Andrew T) capitalist production is possible for at least 100 periods. No forseeable breakdown from shortage of surplus value. Capital is stable as long as the banks are willing to advance money to capitalists to indulge in ever greater orgies of luxury spending. Presumably the message from Kaleckian theory to the working class is simply this: "help the ruling class overcome any 'Protestant' inhibitions against luxury, consumption and decadence, for the stability of your employment depends on their use of credit lines to finance their overconsumption." We can safely assume that capitalists will consume enough to realize all of surplus value. To be sure, this puts a burden on them. Imelda Marcos had to shop a lot and find room in her closet for new pairs of shoes. Who cares? Moreover since the OCC could reach a plateau much faster if Bauer's scheme did not begin with such a low one in the first place (as Rick Kuhn quoting Grossmann has already shown), there is no reason why the rise in the OCC will likely be neutralized by a rise in the S/V. So in no way does Trigg show that it's impossible for the accumulation of capital to founder on a shortage of surplus value. No doubt there could be a realization crisis if the capitalists do not advance order what will turn out be the revenue component of surplus value. Why Andrew T thinks that has proven to be a greater source of problems for the capitalist system as a whole than periodic drops in profitability from rises in the OCC I have no idea; he certainly does not show that various phenomena can be traced to the problem that he isolates. So his theory does not have the consilience (to mis use Whewell's word) that Grossman's theory had. If autonomous investment falters as a result of declining profitability from previous overaccumulation, autonomous increases in the other components of effective demand, e.g. luxury and state deficit financed spending, may only weakly and temporarily boost effective demand and therewith profitability. The restoration of profitability may require the context of at least a recessionary phase in the business cycle. Or at the very least it may require regressive tax reform, anti-labor legislation, and control of export markets--that is, neo mercantilism of the type that Bush has practiced. As for military expenditures their main positive effect is not through the increase in effective demand per se but in the consumption of higher cost or morally depreciated capital equipment that military spending and even more war cause. High cost capacity used up, opportunities for investment in lower cost capital goods are thereby widened and anticipated profitability improved: war thus allows for the destruction of capital that depression would otherwise effect. At 12:19 AM +0000 11/5/04, A.B.Trigg wrote: > A reading of Marx in Capital, volume 3, also shows that it is >difficult to realise such a monstrous amount of surplus value. Difficult yes. Baran and Sweezy's difficulty of the sales effort, the difficulty of creating ever newer Veblenian positional goods, the Kalecki/Trigg difficulties in the financial sector subsidizing ever more orgiastic luxury spending. But what Grossmann's analysis predicated upon a provisional acceptance of Say's Law uncovers is an even greater obstacle to the realization of that monstrous amount of surplus value. As Mattick pithily put it:"because not enough surplus value has been produced, capital cannot expand at a rate which would allow for the full realization of what has been produced. the relative scarcity of surplus labour in the production process appears as an absolute abundance of commodities in circulation." > > I have two points to make: Taking them in reverse order. > > 2. I cite Samuelson and Wolfson (1986) in the article as >showing that the only dependent variable in the Bauer/Grossmann >model is the capitalist propensity to save. > Hence with the OCC rising and rate of surplus value constant, the >propensity to save must reach 100%: capitalist consumption collapses. >In my alternative macro-monetary model capitalist consumption >becomes an exogenous variable, part of the money cast into >circulation by capitalists. The dependent variable is the rate of >surplus value. OK so in your interpretation not only do capitalists earn what they spend but they determine the rate of s/v through their spending. But there are constraints on the growth rate of the s/v rate. And these you do not seem to theorize in your model. > Now under this alternative model there cannot be a breakdown due to >scarcity of surplus value. With even a small rate of increase of >capitalist consumption, a rising OCC cannot eat up all the surplus >value - even if we start the Bauer simulation at a higher OCC. There >is no year of precise economic breakdown due to drying up of surplus >value. No precise year could ever be deduced from Bauer's model anyway. Each period could represent a month or a decade. The initial conditions are arbitrarily postulated and a change in them would obviously change the year of economic breakdown. This was my initial point, drawing from Kuhn's research into Grossmann's correspondence. Grossmann was very aware of the dangers of trying to deduce too much from Bauer's scheme. Neither Sweezy nor Howard and King are fair to Grossmann on this point. In G's analysis B's scheme is as much positively used as criticized. The phrase G-B model is seriously misleading. > I agree that a rising s/v is unreasonable. Well then! > You say that it would be so because of workers resistance. To the extent that workers cannot live on air,the rise in s/v will necessarily find limits that the rise in the OCC will not. Cogoy showed this. So did Yaffe before him as you recognize in your paper. You can only be certain that there will be no break down from a shortage of surplus value at even very high levels of the OCC if you allow, consequent upon autonomous increases in luxury spending, the S/V to rise in physically and socially impossible terms. Without determinate parameters and limits on the growth of s/v, one counters Grossmann only by flight from living reality. In short, an autonomous increase in luxury spending cannot be allowed to raise the s/v without any limits at all. > > 1. Grossmann did think that the rate of surplus value should >rise, as does Marx, in the falling rate of profit thesis. Yes indeed. Howard and King's argument that Grossmann neglects the effects of a rising s/v and relative surplus value ignores that Grossmann saves just that effect for intensive study in his conclusion where the political implications of his variant of breakdown theory are drawn. The conclusion is not in the English version; it was translated by Kenneth Lapides in History of Political Economy as I am sure you know. The unabridged Spanish translation is available on the American amazon.com website. Yours, Rakesh Setting aside my criticism that rules should not be stipulated for the autonomous increases of luxury spending if the consequence thereof is physically and socially impossible increases in the rate of surplus value--that is, the putative endogeneous variable (s/v) does limit the action of the claimed exogeneous variable (rule based increase in autonomous luxury spending) --Andrew responds: At 12:52 AM +0000 11/8/04, A.B.Trigg wrote: >Rakesh. >This passage from Mattick is familiar to me, but not easy to >digest. If Say's Law is provisionally accepted, then with supply >creating its own demand how can there be realization problems? >Andrew T. There is indeed no reason why say before the 21st period in Bauer's extended scheme, capitalists may not as a whole undertake the level of investment required to realize the surplus value that has been produced. The absolute level of effective demand could prove insufficient; and we don't even have to consider disproportionalities. Perhaps the banks did not create enough credit because they had too many bad loans on their books. There could well be a K (Kaleckian or Keynesian) crisis of effective demand. But the methodological point is to set that aside, to assume that capitalists are undertaking the expanded level of debt financed investment that would allow for the realization of surplus value. This after all is not an unreasonable assumption: capitalists are forced by competition to increase scale and capital intensity and are rewarded with ever larger sums of surplus value that allow for an absolute increase in their own personal consumption. The endogeneity of credit can be reasonably assumed. Now imagine what happens at the level of an individual capitalist. He had hitherto expanded investment but perhaps the absolute mass of surplus value appropriated has begun to drop or the sum left over for his own consumption keeps dropping after he expands his level of investment even though he remains successful at disposing of his product at value. There has been no break down in the autonomous increase in investment, demand has equalled supply; but accumulation no longer pays. Each now stops making the expanded level of investment necessary to realize the surplus value of the other. Demand no longer equals supply. The provisional acceptance of Say's Law was meant to get us further along in the scheme, to reveal the diminishing sum of surplus value as an objective shortage and possible cause of the weakness of further debt financed or autonomous investment which as Keynes realized was the most important component of effective demand. This is what I understand Mattick to be saying here: "because not enough surplus value has been produced, capital cannot expand at a rate which would allow for the full realization of what has been produced. the relative scarcity of surplus labour in the production process appears as an absolute abundance of commodities in circulation." With that objective possibility uncovered, one need not always explain the weakness of effective demand in terms of the surface categories of finance, circulation and psychology--that is, the basic categories of vulgar economics. Which is not to say that bourgeois understanding may not serve perfectly well (prove pragmatic) in some recessions. But Marxian theory is not a pragmatism. It represents (as Althusser brilliantly understood) a Bachelardian epistemological break with the everyday categories of the marketplace. Keynesian and Kaleckian theory does not. They will thus have a much easier time colonizing even oppositional thought. The difficulties of theoretical practice are real. The Marxian claim is that serious and protracted depressions in effective demand cannot ultimately be explained with the categories of bourgeois understanding and thus the practical remedies suggested from within that horizon are bound to fail (bank reform by writing off bad loans, deficit spending, confidence boosting, mercantilist trade policy through tariffs or competitive currency devaluation, even progressive income redistribution). Or the actual reasons for their possible effectiveness simply not recognized. E.g. deficit financing could increase the rate of surplus value through its inflationary consequences; mercantilist trade policy or imperialism could stave off the fall in the general rate of profit at the expense of others. Rakesh I think Andrew T would agree with what Crotty says here (I quoted this passage before); I of course disagree with the very first claim. James Crotty has noted: Minsky is quite emphatic...(an) investment decline can never be initiated by a prior decline in the expected profitability of investment; rather, it takes an initial drop in investment to induce a subsequent decline in profits. Investment and profits are not mutually codetermining: investment spending calls the tune and profits dance accordingly. As Minsky puts it: 'In the simplest Kalecki case, where aggregate profit equals aggregate investment, the shortfall of realized profits below anticipated profits requires a logically prior shortfall of investment. This leaves the question of...crises..and...depressions unexplained, for it is the decline of investment that has to be explained.' Minsky's view on this point is also summarized in the following quotation: 'The profitability of existing capital--and profit expectations-can only change if investment and expected investment [first]decline. Thus we have took elsewhere--to arguments other than those derived from assumed properties of production functions and hand waves with regard to over-investment--to explain why the marginal efficiency of investment falls. The natural place to look within the Schumpeter-Keynes-Kalecki vision is in the impact of financing relations.' Thus, Minsky, can find no impediments to perpetual balanced growth in the real sector of the economy. The roots of instability are to be found in the financial markets. Journal of Post Keynesian Economics, Summer 1990, p.530 This paragraph reads to me as an admission of failure ("...can find no impediments..in the real sector...") But in support of Crotty's first claim, Andrew has attempted an immanent critique of Grossmann from a Kaleckian perspective. I would say that another problem with Keynesian or Kaleckian framework is that it very easily lends itself to right wing appropriation: there is no inherent reason why it could not be deployed to justify a Bush tax regressive, militarist stimulus over a Swedish type corporatism. In fact it leaves one defenseless if in fact the former is more likely in a given conjuncture to be stimulative in a formalisitc logico-positivist sense. The problem was recognized by Paul Crosser, State Capitalism in the Economy of the United States (New York: Bookman, 1960): "The problem whether the flow of money for the stimulation of the economy is to be channeled into the production of nonwar goods or war goods does not enter the analytical pricture which Keynes offers: nor does Keynes tackle the problem whether the money is to be spent on labor-intensive or capital-intensive industries. Keynes's theoretical position can therefore be invoked in regard to any aspect of spending which is undertaken wth the direct or implied purpose of stimulating production and employment. Those who prefer government spending for public works can cite Keynes in their favor, as can those who point to the greater economic effectiveness of government spending for war goods production. "Keynes's analysis is a purely formalistic logico-postivistic one which is stripped of social economic content. His analytical framework is therefore of little help in a tract such as this which strives to assess the impact of government spending and the resultant changes in the structure of the economy and society of a given country." (p.36) In his brilliant early reaction to Keynesian economics Erich Roll (1938) emphasized that social democratic or corporatist, left wing or fascist policy could be justified from within the Keynesian framework: To Keynes and his followers "the state is a mechanism which can be used to influence the economic system according to one's ideals. One can readily grant that the ideals of Mr. Keynes and his followers are noble. But can their analysis offer an effective opposition to those whose ideals are less exalted and whose policies are abhorrent? It is clear that they cannot. Their approach uses abstract categories which demagogy can use and fill with its own real content. Sismondi and Proudhon used an analysis somewhat similar to that of Mr. Keynes for Utopian, quasi-socialist purposes. Malthus used it to defend the remnants of feudalism against capitalist revolution. A progressive and reactionary purpose can find support--or at least indifference--in an economic theory that is confined to the sphere of circulation and that operates with psychological concepts." p. 88 Grossmann's theory on the other hand clarified that the inevitable descent into international conflict and regression in the conditions of work could only be prevented by a change in the relations of production, in the emancipation from exploitation. rb >The main point I'm trying to make here as regards the reproduction schemes >is rather simple. The average industrial rate of profit is not the same as >the average general rate of profit, and total production capital is not >equal to the total capital stock. > >The wealthier a society is, the more capital assets exist which are neither >current outputs or inputs to current outputs. > >Why is that important to know? You can build a model of how the profit rate >on production capital will decline, to the point of crisis, but if you do >not consider the circuits of capital external to production, the model is >likely to be counterfactual, or apply only in highly special cases. > >Cheers > >J.
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