Re: Inflation (Finance Capital uber alles)

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

Tom,
I think both Palley and Galbraith fall victim to a hydraulic of
mechanical view of Keynesianism. Paul Mattick Sr was a critic of such
Keynesianism.

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. Palley and Galbraith are indeed right about this.

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.

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--as Palley and Galbraith
hope--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).

Both Palley and Galbraith want to leave unused money and productive
capital in private hands--Keynesianism is a bourgeois system after
all; but they do call for the state to intervene in other ways.
Palley flirts with first world protectionism, which I think puts him
on a very slippery slope towards trade discrimination against the
poorest people. Galbraith calls for incomes policy which easily
degenerates into repression of the working class.


Rakesh

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