Currency union: some arguments

Bella Caledonia published a shortish piece of mine on the political economy of a currency union with Scotland, post-independence. I argued that disputes here reflected both the overwhelming strength of finance inside the UK economy, and the hidden weakness of its current account position. This provoked some debate; my reply is as below.

The UK’s productivity puzzle

This was originally published on the NEF blog at: http://www.neweconomics.org/blog/entry/the-uks-productivity-puzzle

You might have missed the ONS’ latest estimates for UK productivity – they crept out late last year on Christmas Eve. They tell a familiar but not especially pretty story: output per hour worked fell by 0.3% over the middle part of 2013. In production industries, it’s down 1.2%. This means whatever economic growth occurred over the last year was not the result of people working better, or more efficiently. It was the result of an increase in the total number of hours worked. Productivity, over the whole year, barely improved.

Tony Cliff and capitalist crisis

A bit more on this. Tony Cliff, in chapter seven of his classic State Capitalism in Russia, offers a brief, analytical description of capitalist crisis, based on Marx, that differs (I think) fairly substantially from what has become the orthodoxy. Cliff describes the central contradiction owners of capital face between the need to both generate profits, via the creation of surplus value, and the need to realise those profits in monetary form, by selling the output produced. It is this contradiction that drives the whole process of the business cycle, but, critically, Cliff does not here attempt to make the claim (central to Chris Harman’s version of the theory) that the falling rate of profit ultimately determines the entire system:

Unlike all pre-capitalist forms of production, capitalism is forced to accumulate more and more capital. But this process is hampered by two complementary, and yet contradictory, factors, both arising out of the system itself. One is the decline in the rate of profit, which means the shrinking of the sources of further accumulation. The other is the increase in production beyond the absorptive capacity of the market. If it were not for the first contradiction, the “underconsumptionist” solution of the crisis – to raise the wages of the workers – would be a simple and excellent answer. If it were not for the second contradiction, fascism could, by continuously cutting wages, have staves off the crisis for a long period at least…

…the rate of profit determines the rate of accumulation, the rate of accumulation determines the extent of employment, the extent of employment determines the level of wages, the level of wages determines the rate of profit, and so on in a vicious circle. A high rate of profit means a quick accumulation, hence an increase in employment and a rise in wages. This process continues to a point where the rise in wage rates so adversely affects the rate of profit that accumulation either declines catastrophically or ceases altogether…

This theory explains why, in spite of the antagonistic mode of distribution and the tendency of the rate of profit to decline, there is not a permanent crisis of overproduction, but a cyclical movement of the economy.

This is, to my mind, a much more satisfactory description of the actual history of capitalist development than the prediction of ever-worsening crises over time, ameliorated only by “countervailing factors”.

Rosa Luxemburg and the tendency of the rate of profit to fall

This is a longish note that was originally part of an email discussion concerning the tendency of the rate of profit to fall (TRPF) in Marx’s own writings, and that of later Marxists. It might be of wider interest, so I’ve reproduced it here.

The evidence from Rosa Luxemburg’s principle writings does not tend to support the conclusion that she viewed the falling rate of profit as an essential part of her analysis. Her critical focus, in The Accumulation of Capital, was on the crisis of realisation: of what we might now think of as effective demand. On the basis of her updates of Marx’s volume 2 reproduction schemes, she concluded that this realisation crisis – not a profits crisis – could be resolved through the expansion of capital into the non-capitalist world; that is, through imperialism. The dynamic of her system, in other words, was not determined by a crisis of profitability emerging at the point of production (as in the orthodox, Chris Harman version of TRPF), but of crisis emerging as result of problems in the circulation of commodities.

Democracy, revolutionary organisation, and the internet

This was originally written for the Socialist Workers Party’s (increasingly ill-named) ‘Internal Bulletin’, ahead of conference in early 2010, and shortly after I was suspended as a member, as detailed below. I was, as the piece makes clear, somewhat irked at the time by these spurious disciplinary proceedings, although in light of events over subsequent years it’s really very small beer indeed. Originally written from the viewpoint that the SWP could in some sense be reformed, it’s now painfully clear that this would be a hopeless task. It cannot be reformed, and nor should it be rebuilt. New organisations, not exercises in nostalgia, are now required.

I’m republishing the article here because the more interesting parts of the essay weren’t printed at the time. These are the first and last sections, on how the internet and communications technology changes the possibilities for political organisation. It was a mistake not to submit them for publication back then, but I think the issues raised (and the solutions suggested) are still of immediate relevance – perhaps more so now.

Don’t believe the hype – this is a bubble, not a boom

This originally appeared on the NEF blog at http://www.neweconomics.org/blog/entry/dont-believe-the-economic-hype-this-is-a-bubble-not-a-boom

I think it was one of the first pieces to express some cynicism about the brave talk of a “boom” that suddenly appeared everywhere last summer. Subsequent events tend to confirm the analysis given here. 

Happy days are here again, if you read the right papers. UK output grew by a mighty 0.6% between April and June this year, on top of 0.2% growth in the three months before that. “BOOMING BRITAIN HAS WOW FACTOR” boasted London’s Evening Standard.

Don’t believe the hype. This isn’t a boom. It’s barely even a convincing recovery. Only after years of stagnation, aided and abetted by George Osborne’s austerity policies, is it possible to present these feeble growth figures as something to boast about. The IMF now forecasts 0.9% growth for the year. That’s a third of the rate of the early 2000s. The economy is limping when we would normally expect it to be sprinting.

Chris Harman, economic dynamics, simultaneous equations

It’s ten years ago this month that the Marxist economist Michael Kidron died. Kidron’s work today is woefully and unfairly neglected, but his concerns – around the fusion of state and capital, and environmental destruction especially – now look far ahead of their time.

It was in the course of writing an appreciation of Kidron that I was ended up rereading Chris Harman’s Explaining the Crisis, and noticed a glaring theoretical flaw I’d failed to spot in the past (pp.24 et seq.). Harman, in seeking to defend an orthodox interpretation of Marx’s Capital with the falling rate of profit as the principle theory of crisis, attacks those making use of simultaneous equations solutions to the transformation problem.  (It’s around about here that things are going to get obscure – apologies.) In particular, he – correctly – indicates that input prices for commodities used in production will vary from output prices, but then claims that the use of simultaneous equations solutions to the price system enforce an equation between the two. His preferred “solution” to the transformation problem involves taking a set of input prices for the production process, and then allowing them to be transformed (through the production process) into a different set of prices. The prices change because of the application of labour to the input commodities; the new output necessarily reflects a different labour content. Simultaneous equations solutions, Harman claims, collapse this dynamic process of production.

But this won’t do. As Ajit Sinha notes of Andrew Kilman’s Reclaiming Capital, in his devastating review, it involves a fundamental misunderstanding of the procedure of simultaneous equations. The problem is that once the outputs have been produced by the economy, they then re-enter a further round of production, forming another new set of input prices. This process is continuous under capitalism: the system does not just produce (say) one year’s worth of output, and then stop. In other words, we can’t just calculate one round of production – we have to keep running the system forward until we arrive at a stable set of prices for the economy, so that every year’s worth of output forms the following year’s input, and so on.

This is precisely what the simultaneous equations method attempts to do: they attempt to show how the system, on the basis of Marx’s assumptions about the labour theory of value, produces a stable set of prices for all commodities produced. All Harman has done here is to (in effect) follow the first step in finding  a solution to simultaneous equation solution, and then declare that the entire system is thereby solved. It isn’t.

So Harman got the working substantially wrong – echoing, it would seem, the same error made by Marx. His defence, in Explaining the Crisis, of the falling rate of profit, collapses as a result of it. But he got the *intuition*  correct. It is absolutely true that capitalism is a dynamic system because it depends on the production of commodities, not just “by commodities” (in Sraffa’s phrase) but over time by labour. Simultaneous equations solutions to the price system assume away too much, collapsing that dynamic production process into a problem of the exchange of produced commodities only. To grasp that dynamic, however, requires to specify it properly – the “commonsense” solution provided by Harman, and its scholastic elaboration by Kliman, is not adequate to the task. The approach of Duncan Foley (1982), specifying formally the dynamic systems of prices and values, looks much more promising – and has been used fruitfully in recent work by Paulo dos Santos and Giorgos Galanis, for instance. As far as I can tell, Harman never referred to it, which is a great shame: his basically correct insight might not have lead, then, to a basically incorrect theory.

Keynes, “Keynes”, and Keynes

This was my reply to Tad Tietze’s note on the left and Keynesianism, over on Facebook, which followed a discussion about Syriza and its programme for Greece. It’s been suggested that it’s quite a useful summary of the left’s various confusions about Keynes, so I’m reposting it here – I think it can stand by itself:

The “confusion” Tad mentions is the one that, unfortunately, exists across the left and into wider society. It falls into at least three parts: first, over what anyone understands by “Keynesianism”; second, over what Keynesians themselves say; third, over what Keynes himself actually said or thought. The last, by itself, is of largely academic interest, but it tends to end up creeping into – and informing – the other two.

Greek austerity: the end of the line

This was originally published on the NEF blog at: http://www.neweconomics.org/blog/entry/greek-austerity-the-end-of-the-line

This is not a Greek crisis. It is a European crisis, in two parts. First, the financial crash of 2008 provoked a global recession of exceptional severity. Combined with bailouts for the banks, this led to sharply increased debts and deficits for most large economies – including those in the Eurozone.

Delay, delay, delay

Apologies for the pause in posting: I’ve been ferociously busy with other things, not least of which was the launch of the new, improved Counterfire website. Feedback so far has been (almost) universally excellent, and site visits seriously in excess of what I (at least) anticipated. It’s too early to say whether this early success will continue, but I think our hunch about the need for an open, accessible UK lefty website is going to pay off.