Re: Marx & Ricardo on fiscal impotence

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

Jim writes:

>  In a footnote in the latter, Marx quotes
> Sismondi, a deviant Ricardian.

jim, you're joking right? sismondi a deviant ricardian? sismondi
criticized ricardo root and branch for failure to theorize
possibility of a general glut which failure he traced back to the
faulty abstractions on which classical economics was based, no?


> As I understand Ricardo (and I am far from being a true student of that
> economist), he believed that any government borrowing (i.e., Keynesian
> stimulus) corresponded to taxes to pay the interest on the government's
> increased debt. This lowers the present and future income of the population,
> reducing spending, counteracting the fiscal stimulus.


well it would be silly to deny that future after tax income would be
greater if the govt did not have to deduct taxes  in order to honor
past debt obligations, but I don't read Marx denying that future pre
tax income may turn out to be greater than it would otherwise have
been if the state at times runs deficits and prevents a hemmoraging
in the current monetary flow.



> The Chicago-style
> Harvard economist Robert Barro put this in terms of so-called "rational
> expectations" and pushed it further than Ricardo, who didn't seem to take it
> seriously in practice.

my understanding too.


> CRITIQUE: The problem is that increased government borrowing might (1)
> increase the capacity of the economy to produce, e.g., by corresponding to
> investment in infrastructure, education, public health, etc., which allows a
> higher profit rate to be produced (cet. par.); and/or (2) increase the
> demand for the economy's production, allowing faster turn-over of
> commodities and capital (higher volume of sales and capacity utilization
> rates) and thus higher realized profit rates.


but where does Marx say otherwise?

Jim, you implicitly seem to agree with what I wrote on fictitious
capital in pen-l 20805:


 while the value borrowed through the issue of govt paper is
destroyed in its function as capital (unless of course the state is
itself undertaking commodity production)  that paper still yields a
return. The value  extinguished, only the state's taxing power and
credit standing can thus stand behind the paper which it issues.
That's the ABC's of what Marx is saying in Capital, vol 3. Which is
not to say that he's right.


 But even though state spending pulverizes value, it is indeed
possible--and MARX NEVER DENIED THIS--that state's latent fiscal
power will be stronger in the long term if it borrows and spends in a
downturn than if it adopts the Treasury view.

I think this is what you are  missing in your suggestion that Marx
had  a so called nihilistic Ricardian view of fiscal policy :  that
govt paper represents (as Marx underlines) *purely* fictitious
capital does not mean that the effects of govt debt are necessarily
fictitious or illusory.


It may indeed turn out that in practice Keynesian policies have only
illusory or fictitious consequences, and it may even be that
Keynesian policies are in fact counterproductive. As Bill Gerrard has
suggested, Keynesians having commited themselves to a hydraulic or
mechanical view of their system have failed to recognize openly that
their policies may prove impotent or even counterproductive. Failure
may not only be the result of insufficient govt intervention or the
the wrong policy mix.

Of course if one argues the view that govt deficit financing attempts
must always fail or worse, then one has made a strawman of himself.
Mattick certainly did not make this point, and in fact underlined
that govt stabilization programs had been successfully tried and
theoretically defended in germany before Keynes (I think Juergen
Backhaus has written on this).

Mattick was more subtle than usually recognized...including by his
followers, myself included!  In the early 60s Mattick thought that
govt production would expand in response to the weakness of private
capital formation and while the mixed economy could remain stable it
would eventually itself become a further impediment to private
capital accumulation.




> A combination of these means that the tax base (i.e., aggregate income)
> rises, so that the interest on the government debt can be paid without there
> being a higher tax burden on any individual.


but Mattick's Marxian or value theoretic analysis never denied this.
See the chapter on the mixed economy in Marx and Keynes.


> That is, as Jim O'Connor might say, the government's efforts might be
> "indirectly productive" even if they aren't directly productive of
> surplus-value.


A potential problem with O'Connor's analysis is that he refers to
deficit financed infrastructure as itself capital the value of which
is thereby presumably (and directly) transferred to the marketable
output. That is, O'Connor does not develop Marx's idea that govt
paper is purely fictitious capital in the sense that only the state's
taxing power and credit standing can stand behind it while the
state's taxing power and good credit standing themselves depend
ultimately on the profitability of private industry.

> Of course, the state might engage in "state capitalism" (as
> with places like Algeria or Mexico, until recently at least). In this case,
> the state debt would be a claim on the surplus produced directly by the
> state.

And neither Mattick nor Marx ever denied this. Hal Draper has a nice
overview of Marx's comments on this kind of state capitalism in vol
4, I believe.



> The Ricardian view (or at least the Barro version) is based on the idea that
> the economy is always at full employment and that government investment in
> "public goods" never bounces back to help government revenues. I guess the
> latter is saying that the private sector can do a better job of providing
> public goods (which is quite silly).


But this is not Marx's view, and you haven't provided evidence that
Marx accepted this view.



By the way, here is another response that I wrote to you. I would
benefit if you decide to parse and respond to it.

> Subject: [PEN-L:20779] Re: loanable money capital
Reply-To: pen-l@xxxxxxxxxxxxxxxxxxx
Sender: owner-pen-l@xxxxxxxxxxxxxxxxxxx

> However, one quote from Marx I found once (I'll look for it if someone
> wants) suggested that Marx accepted a Ricardian vision of fiscal policy,
> i.e., that it was useless.
>
> Jim Devine

Mattick's reading of Marx did not yield such a plainly negative judgement.

What Mattick sr criticized was technocratic or hydraulic view of
Keynesianism which had adopted (what bill gerrard has characterized
as) a mechanical view to the operation of the capitalist economy in
which the aggregate level of employment can simply be adjusted by
pulling the particular levels available to the central authorities.


But Mattick sr certainly agreed that even if the increase of the
national debt offsets the income created by deficit spending, it is
indeed possible that new savings, resulting from increased income,
will in turn offset the national debt. There is indeed the
possibility that deficit spending can be financed out the savings it
has itself created.

Moreover, it is possible that by increasing the profitability of
those enterprises that partake in govt induced production and
allowing for the accumulation of interest bearing claims on the govt,
deficit financing may create a business climate more favorable for
the resumption of private investments. Especially if the govt spends
on what james o' connor calls social capital, though Mattick did not
believe that these infrastructure costs were, strictly speaking,
forms of constant capital the value of which was directly transferred
to marketable output. But mattick sr did not rule out of hand the
possibility that some govt spending could indirectly have positive
accumulation effects.

However capitalist reactions to govt deficit spending may be negative
instead of positive. So even if deficit spending does increase
income, it it may reduce private investment even further.

Mattick believed that the result of Keynesian deficit spending
depended on the specific crisis conditions.

It is possible that if larger profits are made over the course of
time in marketable production (i.e., not govt induced production) and
thus allow for larger tax revenue, a part of those taxes can easily
be used for the payment of interest on govt bonds.

So if deficit spending does not undermine business confidence, and is
followed by strong profits in future marketable production, it can
prove to be a stabilizing factor in the short term.

In this case Keynesianism may allow central authorities to ensure
that no adverse movements in the current monetary flow obtain and
eventually 'ride the wave' created by sufficiently large positive
shock to the economic system.

Mattick did not believe that such a shock would obtain unless of
course there was a massive enough devaluation and destruction of
capital that would pave the way for new investments in which new
technologies would be embodied.

Moreover, if over time 'pessimism' about the possibility of such a
positive shock took over and compensatory govt deficit financing
therefore became entrenched, Mattick argued that the future tax
burden represented by the accumulation of national debt from deficit
spending would lead to more pessimism and more retrenchment of
private investment. Keynesianism would go from a palliative to
compounding problem.

The post 79 attack on the keynesian welfare state vindicated his analysis.

While leaving idle loan capital and unused productive resources in
private hands, the state has not proven able to sustain full
employment through fiscal and monetary policies.

There has instead been a lock up (incarceration) or lock out (anti
immigration policy) of the global unemployed as well as feeble
attempts to maintain and create employment through the manipulation
of trade (not only through say abuse of anti dumping laws but also
through the so called free trade of regional agreements such as NAFTA
that may well encourage employment generating foreign direct
investment into the more powerful economies by the capitals of those
countries, e.g., Japan, Germany or South Korea, that are
discriminated against by the industry specific rules of origin in
these regional agreements).

Rakesh

ps lawrence klein's keynesian revolution and bill gerrard's theory of
the capitalist economy are helpful.